##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 20-F
 
 (Mark One)
 o
    
    Registration statement pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of 1934
 or
 þ
    
    Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For
the fiscal year ended December 31, 2010
 or
 o
    
    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from                      to
 or
 o
    
    Shell company report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 Date of event requiring this shell company report
 Commission file number 001-33821
 
 VisionChina Media Inc.
 (Exact Name of Registrant as Specified in Its Charter)
 
 Cayman Islands
(Jurisdiction of Incorporation or Organization)
 1/F Block No.7 Champs Elysees
Nongyuan Road, Futian District
Shenzhen 518040
Peoples Republic of China
(Address of Principal Executive Offices)
 Limin Li, telephone: (86 755) 8293-2222; fax: (86 755) 8298-1111
At the address of the Company set forth above
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
 
 Securities registered or to be registered pursuant to Section 12(b) of the Act:
 Title of Each Class
    
    Name of Each Exchange on Which RegisteredCommon Shares, par value US$0.0001 per share
    
    Nasdaq Global Market*American Depositary Shares, each representing one Common Share
    
    Nasdaq Global Market
 Securities registered or to be registered pursuant to Section 12(g) of the Act:
 None
 Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
 None
 
  84,047,287 Common Shares
 Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act. Yes o No þ
 15(d) o þ
  þ o
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
  U.S. GAAP þ
    
    International Financial Reporting Standards as issued by the International Accounting Standards Board o
    
    o Other
  o o
 o þ
  o o
 
 *
    
    Not for trading, but only in connection with the listing on the Nasdaq Global Market of the
American Depositary Shares




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##### 



VISIONCHINA MEDIA INC.
ANNUAL REPORT ON FORM 20-F
 Table of Contents
 PageCONVENTIONS THAT APPLY TO THIS ANNUAL REPORT ON FORM 20-F
    
    3Part I
    
    
    
    3Item 1.
    
    Identity of Directors, Senior Management and Advisers
    
    3Item 2.
    
    Offer Statistics and Expected Timetable
    
    3Item 3.
    
    Key Information
    
    3Item 4.
    
    Information on the Company
    
    33Item 4A.
    
    Unresolved Staff Comments
    
    51Item 5.
    
    Operating and Financial Review and Prospects
    
    51Item 6.
    
    Directors, Senior Management and Employees
    
    72Item 7.
    
    Major Shareholders and Related Party Transactions
    
    80Item 8.
    
    Financial Information
    
    84Item 9.
    
    The Offer and Listing
    
    85Item 10.
    
    Additional Information
    
    86Item 11.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    92Item 12.
    
    Description of Securities Other Than Equity Securities
    
    93Part II
    
    
    
    95Item 13.
    
    Defaults, Dividend Arrearages and Delinquencies
    
    95Item 14.
    
    Material Modifications to the Rights of Security Holders and Use of Proceeds
    
    95Item 15.
    
    Controls and Procedures
    
    96Item 16A.
    
    Audit Committee Financial Expert
    
    97Item 16B.
    
    Code of Ethics
    
    98Item 16C.
    
    Principal Accountant Fees and Services
    
    98Item 16D.
    
    Exemptions From the Listing Standards For Audit Committees
    
    98Item 16E.
    
    Purchases of Equity Securities by the Issuer and Affiliated Purchasers
    
    98Item 16F.
    
    Change in Registrants Certifying Accountant
    
    99Item 16G.
    
    Corporate Governance
    
    99Part III
    
    
    
    99Item 17.
    
    Financial Statements
    
    99Item 18.
    
    Financial Statements
    
    99Item 19.
    
    Exhibits
    
    101EX-8.1EX-12.1EX-12.2EX-13.1EX-13.2EX-23.1
  2




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##### Table of Contents



CONVENTIONS THAT APPLY TO THIS ANNUAL REPORT ON FORM 20-F
  
    
    ADSs refers to our American depositary shares, each of which represents one
common share, and ADRs refers to the American depositary receipts that may evidence
our ADSs;
    
    China or the PRC refers to the Peoples Republic of China, excluding, for the purpose of
this annual report only, Taiwan, Hong
Kong and Macau;
    
    local operating partners refers to the local television stations with which we
established our direct investment entities or from which we buy advertising time, or the
local mobile digital television operating companies with which we entered into exclusive
agency agreements or from which we buy advertising time;
     
    
    RMB or Renminbi refers to the legal currency of China; $, dollars, US$ and U.S.
dollars refer to the legal currency of the
United States;
    
    shares or common shares refers to our common shares; preferred shares refers to
our Series A convertible redeemable preferred shares and
Series B convertible preferred shares; and
    
    we, us, our company, our and VisionChina refer to VisionChina Media Inc., a
Cayman Islands company, its predecessor entities and subsidiaries, and its consolidated
affiliated entities and their subsidiaries. Although VisionChina does not directly or
indirectly own any equity interest in its consolidated affiliated entities, VisionChina
effectively controls these entities through a series of contractual arrangements. We
treat our consolidated affiliated entities as variable interest entities and have
consolidated their financial results in our financial statements in accordance with
generally accepted accounting principles in the United States, or U.S. GAAP.
   
 Part I
 
 Item 1.
    
    Identity of Directors, Senior Management and Advisers
  
 Item 2.
    
    Offer Statistics and Expected Timetable
  
 Item 3.
    
    Key Information
 Selected Financial Data
  3




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##### Table of Contents



For the year endedDecember 31,2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010(US$, except number of shares)Condensed Consolidated Statement of Operations Data:RevenuesAdvertising service revenue
    
    
    2,033,284
    
    
    
    27,489,391
    
    
    
    103,515,250
    
    
    
    120,686,086
    
    
    
    138,056,640Advertising equipment revenue
    
    
    1,839,598
    
    
    
    1,896,200
    
    
    
    565,392
    
    
    
    
    
    
    
    Total revenues
    
    
    3,872,882
    
    
    
    29,385,591
    
    
    
    104,080,642
    
    
    
    120,686,086
    
    
    
    138,056,640Cost of revenuesAdvertising service cost
    
    
    (3,967,081
    )
    
    
    (12,801,957
    )
    
    
    (40,602,022
    )
    
    
    (61,104,381
    )
    
    
    (121,000,454
    )Advertising equipment cost
    
    
    (1,639,895
    )
    
    
    (1,583,325
    )
    
    
    (475,432
    )
    
    
    
    
    
    
    Total cost of revenues
    
    
    (5,606,976
    )
    
    
    (14,385,282
    )
    
    
    (41,077,454
    )
    
    
    (61,104,381
    )
    
    
    (121,000,454
    )Gross (loss) profit
    
    
    (1,734,094
    )
    
    
    15,000,309
    
    
    
    63,003,188
    
    
    
    59,581,705
    
    
    
    17,056,186Operating expenses (1)
    
    
    (2,067,291
    )
    
    
    (5,098,576
    )
    
    
    (20,126,107
    )
    
    
    (32,046,119
    )
    
    
    (183,535,813
    )Government grant
    
    
    125,953
    
    
    
    
    
    
    
    
    
    
    
    538,085
    
    
    
    Loss from equity method investees
    
    
    (469,841
    )
    
    
    (1,262,273
    )
    
    
    (484,969
    )
    
    
    (998,606
    )
    
    
    (109,989
    )Operating (loss) profit
    
    
    (4,145,273
    )
    
    
    8,639,460
    
    
    
    42,392,112
    
    
    
    27,075,065
    
    
    
    (166,589,616
    )Interest income
    
    
    98,873
    
    
    
    505,888
    
    
    
    3,480,212
    
    
    
    1,860,017
    
    
    
    2,082,605Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (109,590
    )
    
    
    (4,952,239
    )Government grant
    
    
    
    
    
    
    
    
    
    
    672,515
    
    
    
    
    
    
    
    Other expenses
    
    
    (22,608
    )
    
    
    (95,719
    )
    
    
    (38,491
    )
    
    
    (1,278
    )
    
    
    Net (loss) income before income taxes
    
    
    (4,069,008
    )
    
    
    9,049,629
    
    
    
    46,506,348
    
    
    
    28,824,214
    
    
    
    (169,459,250
    )Income tax benefit (expense)
    
    
    
    
    
    
    332,386
    
    
    
    212,325
    
    
    
    (2,348,254
    )
    
    
    18,202,289Net (loss) income
    
    
    (4,069,008
    )
    
    
    9,382,015
    
    
    
    46,718,673
    
    
    
    26,475,960
    
    
    
    (151,256,961
    )Net loss (income) attributable to
noncontrolling interest (2)
    
    
    
    
    
    
    11,343
    
    
    
    91,277
    
    
    
    127,043
    
    
    
    (81,261
    )Net (loss) income attributable to VisionChina Media
Inc. shareholders
    
    
    (4,069,008
    )
    
    
    9,393,358
    
    
    
    46,809,950
    
    
    
    26,603,003
    
    
    
    (151,338,222
    )Deemed dividend on convertible redeemable
preferred shares
    
    
    1,583,333
    
    
    
    6,625,262
    
    
    
    
    
    
    
    
    
    
    
    Net (loss) income attributable to holders of common
shares
    
    
    (5,652,341
    )
    
    
    2,768,096
    
    
    
    46,809,950
    
    
    
    26,603,003
    
    
    
    (151,338,222
    )Net (loss) income per common share:Basic
    
    
    (0.26
    )
    
    
    0.11
    
    
    
    0.67
    
    
    
    0.37
    
    
    
    (1.83
    )Diluted
    
    
    (0.26
    )
    
    
    0.11
    
    
    
    0.65
    
    
    
    0.37
    
    
    
    (1.83
    )Weighted average number of shares used in computation
of net (loss) income per share:Basic
    
    
    22,000,000
    
    
    
    24,709,522
    
    
    
    70,064,663
    
    
    
    71,686,900
    
    
    
    82,739,234Diluted
    
    
    22,000,000
    
    
    
    25,771,702
    
    
    
    72,404,916
    
    
    
    72,676,438
    
    
    
    82,739,234Share-based compensation expenses during the
related periods included in:Cost of revenues
    
    
    37,576
    
    
    
    34,431
    
    
    
    39,847
    
    
    
    63,477
    
    
    
    100,711Selling and marketing expenses
    
    
    5,374
    
    
    
    135,722
    
    
    
    1,163,623
    
    
    
    3,698,329
    
    
    
    432,632General and administrative expenses
    
    
    35,802
    
    
    
    51,209
    
    
    
    263,587
    
    
    
    570,305
    
    
    
    414,162
 
 Note:(1)
    
    Included in operating expenses for the year ended December 31, 2010 was a non-cash
impairment loss of US$145.7 million made against the intangible assets and goodwill relating
to our acquisitions of three out of the six advertising agency businesses in 2008 and our
acquisition of Digital Media Group in 2010. More details of such impairment loss can be
found on page 65 Item 5. Operating and
financial review and prospects  A Operating
results  Results of Operations  Year Ended December 31, 2010 Compared to Year Ended
December 31, 2009.(2)
    
    Noncontrolling interest for the years ended December 31, 2006, 2007 and 2008 has been
reclassified in accordance with Financial Accounting
Standard Board, or FASB, Accounting Standards Codification, or ASC, 810 Consolidation. 4




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##### Table of Contents



As of December 31,2006
    
    2007
    
    2008
    
    2009
    
    2010(US$, except number of shares)Condensed Consolidated Balance Sheet Data:Cash and cash equivalents
    
    
    5,215,693
    
    
    
    131,139,659
    
    
    
    163,248,286
    
    
    
    68,834,087
    
    
    
    67,211,336Total assets
    
    
    17,043,776
    
    
    
    175,300,276
    
    
    
    293,639,567
    
    
    
    388,915,736
    
    
    
    442,959,951Total current liabilities
    
    
    1,241,783
    
    
    
    10,618,779
    
    
    
    42,304,706
    
    
    
    102,935,518
    
    
    
    185,514,939Series A convertible redeemable preferred shares
    
    
    15,220,327
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Common shares
    
    
    2,200
    
    
    
    6,839
    
    
    
    7,182
    
    
    
    7,214
    
    
    
    8,490Total VisionChina Media Inc. shareholders equity
    
    
    581,666
    
    
    
    164,028,819
    
    
    
    245,073,014
    
    
    
    272,981,356
    
    
    
    214,785,004Number of common shares issued and outstanding
    
    
    22,000,000
    
    
    
    68,386,838
    
    
    
    71,819,442
    
    
    
    72,140,684
    
    
    
    84,894,888
 
 Note:
    
    Noncontrolling interest as of December 31, 2006, 2007 and 2008 has been reclassified in
accordance with FASB ASC 810. As of December 31,2008
    
    2009
    
    2010Selected Operating Data:Number of digital television displays in our mobile digital
television advertising network:Exclusive agency cities
    
    
    57,250
    
    
    
    79,571
    
    
    
    121,588Direct investment cities
    
    
    4,406
    
    
    
    2,594
    
    
    
    1,784Total
    
    
    61,656
    
    
    
    82,165
    
    
    
    123,372Number of digital displays in our supplemental subway advertising platform
    
    
    4,608
    
    
    
    7,134
    
    
    
    14,023
 For the Year Ended December 31,2008
    
    2009
    
    2010Total hours
of broadcasting(1)
    
    
    119,170
    
    
    
    138,164
    
    
    
    195,366Average revenue per hour(1)(2) (US$)
    
    
    843
    
    
    
    825
    
    
    
    677Average advertising minutes sold per hour
    
    
    7.72
    
    
    
    6.47
    
    
    
    6.75
 
 (1)
    
    Includes all of the cities in our network and supplemental subway advertising platform.(2)
    
    We calculate average revenues per hour by dividing our advertising service revenue
derived from our network and supplemental subway advertising platform by the total hours
of broadcasting in the cities of our network and supplemental subway advertising
platform. Exchange Rate Information
   5




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##### Table of Contents



Exchange Rate (Renminbi per US Dollar)(1)Period
    
    Period End
    
    Average(2)
    
    Low
    
    High(RMB per US$1.00)2006
    
    
    7.8041
    
    
    
    7.9579
    
    
    
    8.0702
    
    
    
    7.80412007
    
    
    7.2946
    
    
    
    7.6072
    
    
    
    7.8127
    
    
    
    7.29462008
    
    
    6.8225
    
    
    
    6.9477
    
    
    
    7.2946
    
    
    
    6.78002009
    
    
    6.8259
    
    
    
    6.8307
    
    
    
    6.8470
    
    
    
    6.81762010
    
    
    6.6000
    
    
    
    6.7642
    
    
    
    6.8330
    
    
    
    6.6000September
    
    
    6.6905
    
    
    
    6.7396
    
    
    
    6.8102
    
    
    
    6.6869October
    
    
    6.6705
    
    
    
    6.6675
    
    
    
    6.6912
    
    
    
    6.6397November
    
    
    6.6670
    
    
    
    6.6537
    
    
    
    6.6906
    
    
    
    6.6233December
    
    
    6.6000
    
    
    
    6.6497
    
    
    
    6.6745
    
    
    
    6.60002011January
    
    
    6.6017
    
    
    
    6.5964
    
    
    
    6.6364
    
    
    
    6.5809February
    
    
    6.5713
    
    
    
    6.5761
    
    
    
    6.5965
    
    
    
    6.5520March
    
    
    6.5483
    
    
    
    6.5645
    
    
    
    6.5743
    
    
    
    6.5483April
    
    
    6.4900
    
    
    
    6.5267
    
    
    
    6.5477
    
    
    
    6.4900May
    
    
    6.4786
    
    
    
    6.4957
    
    
    
    6.5073
    
    
    
    6.4786June (through June 24)
    
    
    6.4737
    
    
    
    6.4757
    
    
    
    6.4830
    
    
    
    6.4628
 
 (1)
    
    The source of the exchange rate is: (i) with respect to any period ending on or prior
to December 31, 2008, the Federal Reserve Bank of New York, and (ii) with respect to any
period ending on or after January 1, 2009, the H.10 statistical release of the Federal
Reserve Board.(2)
    
    Annual averages are calculated from month-end rates. Monthly averages are calculated
using the average of the daily rates during the relevant period. B.
    
    Capitalization and Indebtedness
  C.
    
    Reasons for the Offer and Use of Proceeds
  D.
    
    Risk Factors
 You should consider carefully all of the information in this annual report, including
the risks and uncertainties described below and our consolidated financial statements and
related notes. Any of the following risks could have a material adverse effect on our
business, financial condition and results of operations. In any such case, the market price
of our ADSs could decline.
 Risks Related to Our Company and Our Industry
 The recent global economic and financial market crisis has had and may continue to have a negative
effect on the market price of our
ADSs, and could have a material adverse effect on our business, financial condition, results of
operations and cash flow.
  6




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We have a limited operating history, which may make it difficult for you to evaluate our business
and prospects.
  We have incurred net losses in the past and may incur losses in the future.
  If we are required to impair our goodwill or other amortizable intangible assets, our financial condition and results of operations would be adversely affected.
  7




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If PRC regulators order one or more of our local operating partners to stop their mobile
digital television operations due to violations of applicable regulations, our operations
would be harmed and our financial condition and results of operations would be materially
and adversely affected.
  
    
    no experimental mobile digital television operations shall be conducted without approval of
SARFT;
    
    no formal operation of mobile digital television shall be conducted before the
establishment and adoption of national standards for mobile digital television;
    
    after the adoption of the national digital mobile television standards, all mobile
digital television operations must comply with such national standards; and
    
    existing mobile television network operations must apply for SARFT approval before April
30, 2006, and must stop operating as of
June 15, 2006 if they fail to submit their applications by April 30, 2006 or
their applications are disapproved by SARFT.
   Our local operating partners may be ordered to stop their operation of mobile digital television
operations for incomplete application for
SARFT approval, which may materially and adversely affect our advertising business in the affected
cities.
     We may be subject to, and may expend significant resources in defending against, government
actions and civil suits based on the content and services we provide through our mobile
digital television advertising network.
  8




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Our local operating partners incomplete application, refusal to register and
non-compliance with PRC registration may cause our operations, financial condition and
results of operations be materially and adversely affected.
  9




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##### Table of Contents



If SARFT determines that the regulations on radio and television advertising operation are
applicable to advertising on mobile digital television or establishes similar regulations
for mobile digital television, our business and prospects could be harmed.
  Our failure to maintain relationships with local television stations or local mobile digital
television companies would harm our business and prospects.
  We do not completely control the operations of our direct investment entities; any dispute
with the local television stations could harm our business.
  10




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Our failure or our local operating partners failure to maintain existing relationships
or develop new relationships with local bus companies or subway companies would harm
our business and prospects.
  A significant portion of the mobile digital television networks of our direct investment
entities and the digital television broadcasting infrastructure of our local operating
partners currently do not meet the newly adopted PRC national standards for mobile digital
television operations. We will be required to spend significant capital and other resources to
convert the digital television broadcasting infrastructure of our local operating partners to
these national standards, which could materially and adversely affect our business, financial
condition and results of operations.
  In certain cities, we may be required to obtain approvals in order to continue including
non-advertising content in our programs that are transmitted through closed circuit networks.
If we are unable to continue to include non-advertising content in our programs, our business
and prospects could be adversely affected.
 Circular regarding Strengthening the
Management of Public Audio-Video in Automobiles, Buildings and Other Public Areas
 11




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We operate in the advertising industry, which is particularly sensitive to changes in economic
conditions and advertising trends.
  
    
    a general decline in economic conditions;
    
    a decline in economic conditions in the particular cities where we conduct business;
    
    a decision to shift advertising expenditures to other available advertising media; and
    
    a decline in advertising spending in general.
  If advertisers or the viewing public do not accept, or lose interest in, our mobile digital
television advertising network, our revenues may be negatively affected and our business may
not expand or be successful.
  The process of developing a relationship with a local television station or its mobile
digital television operating company, and then installing digital displays on the mass
transportation systems can be time- consuming and requires us to commit a substantial amount
of resources, from which we may be unable to recognize the anticipated benefits.
 12




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Defects in the local mobile digital television networks, which we rely on to conduct our
advertising operations, could result in a loss of advertisers and audience and unexpected
expenses.
  When our local mobile digital television advertising networks reach saturation in the cities
where we operate, we may be unable to grow our revenue base or satisfy all of our advertisers
needs, which could hamper our ability to generate higher levels of revenues over time.
  If we fail to attract advertisers to our network, we would be unable to maintain or increase
our advertising prices, which would negatively affect our ability to grow revenues.
  13




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We generally do not have exclusive or long-term agreements with our advertising clients and
we may lose their engagement if they are not satisfied with our services or for other
reasons.
  We face significant competition, and if we do not compete successfully against new and existing
competitors, we may lose our market share, and our profitability may be adversely affected.
     14




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Several major cities in China have accounted, and will continue to account, for a substantial
majority of our revenues. Our business and financial conditions are particularly subject to
general economic conditions and the relationships with our local operating partners in these
cities.
  Our quarterly operating results are difficult to predict and may fluctuate significantly from
period to period in the future.
  
    
    our ability to maintain and increase sales to existing advertising clients, attract new
advertising clients and satisfy our clients
demands;
    
    the frequency of our clients advertisements on our network;
    
    the price we charge for our advertising time or changes in our pricing strategies or the
pricing strategies of our competitors;
    
    effects of strategic alliances, potential acquisitions and other business
combinations, and our ability to successfully and timely integrate them into our
business;
    
    technical difficulties, system downtime or interruptions;
    
    changes in government regulations in relation to the advertising industry; and
    
    economic and geopolitical conditions in China and elsewhere.
  15




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Failure to manage our growth could strain our management, operational and other resources,
which could materially and adversely affect our business and prospects.
  
    
    our ability to attract more clients, increase advertising sales and improve our sales support
activities;
    
    increased sales and sales support activities;
    
    our ability to develop and improve our existing administrative and operational systems;
    
    information technology system enhancement;
    
    stringent cost controls and sufficient working capital;
    
    strengthening of financial and management controls;
    
    our ability to maintain our existing relationships with our local operating
partners and to develop new relationships with local television stations or local
mobile digital television companies;
    
    our ability to secure a reliable supply of digital television displays for our
network, which are manufactured by third-party suppliers according to our
specifications; and
    
    hiring and training of new personnel.
  We depend substantially on the continuing efforts of our executive officers, and our business
and prospects may be severely disrupted if we lose their services.
   16




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We may not be able to recruit and retain necessary personnel, particularly sales and
marketing personnel, which could have material and adverse effects on our business, financial
condition and results of operations.
   We may be subject to intellectual property infringement claims, which may force us to
incur substantial legal expenses and could potentially result in judgments against us,
which may materially disrupt our business.
  If we are unable to adapt to evolving advertising trends and preferences of advertisers
and viewers, we will not be able to compete effectively.
  We may need additional capital and we may not be able to obtain it at acceptable terms, or at
all, which could adversely affect our liquidity and financial position.
 17




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##### Table of Contents




    
    investors perception of, and demand for, securities of alternative advertising media
companies;
    
    conditions of the U.S. and other capital markets in which we may seek to raise funds;
    
    our future results of operations, financial condition and cash flow;
    
    PRC governmental regulation of foreign investment in advertising service companies in China;
    
    PRC governmental regulation of the mobile digital television industry;
    
    economic, political and other conditions in China; and
    
    PRC governmental policies relating to foreign currency borrowings.
  
    
    upgrade our mobile digital television advertising network;
    
    further develop or enhance our services;
    
    acquire necessary technologies or businesses;
    
    expand our operations, including the reach of our network;
    
    hire, train and retain employees;
    
    market our programs, services and products; or
    
    respond to competitive pressures or unanticipated capital requirements.
 Acquisition of other companies or assets of other companies is a part of our growth strategy,
and these acquisitions may expose us to significant business and financial risks, including
exposure to contingent acquisition consideration, which may adversely affect our results of
operations and financial condition.
  18




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##### Table of Contents




    
    the integration of new operations, services and personnel;
    
    unforeseen or hidden liabilities;
    
    the diversion of financial or other resources from our existing businesses and technologies;
    
    our inability to generate sufficient revenues to recover costs and expenses of the
acquisitions; and
    
    the potential loss of, or harm to, relationships with our employees or customers.
  Our failure to protect our intellectual property rights could have a negative impact on our
business.
   We rely on computer software and hardware systems in managing our operations, the failure of
which could adversely affect our business, financial condition and results of operations.
  19




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##### Table of Contents



We have limited insurance coverage for our operations in China.
  We may become a passive foreign investment company, or PFIC, which could result in adverse U.S.
tax consequences to U.S. investors.
   
    
    the excess distribution or gain will be allocated ratably over the U.S. investors holding
period for the ADSs or common shares,
    
    the amount allocated to the current taxable year, and any taxable year prior to the
first taxable year in which we were a PFIC, will be treated as ordinary income, and
    
    the amount allocated to each other year will be subject to tax at the highest tax
rate in effect for that year and the interest charge generally applicable to
underpayments of tax will be imposed on the resulting tax attributable to each such
year.
   We may be, or may be joined as, a defendant in litigation brought against our clients or our
local operating partners by third parties, governmental or regulatory authorities, consumers
or competitors, which could result in judgments against us and materially disrupt our
business.
  
    
    advertising claims made with respect to our clients products or services are false, deceptive
or misleading;
    
    our clients products are defective or injurious and may be harmful to others;
marketing, communications or advertising materials created for our clients infringe
on the proprietary rights of third parties; or
    
    our relationships with our local operating partners violate or interfere with the contractual
relationships or rights of third parties.
 20




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##### Table of Contents



Risks Related to Our Corporate Structure
 If the PRC government determines that the agreements establishing the structure for
operating our China business do not comply with applicable PRC laws, rules and regulations,
we could be subject to severe penalties including being prohibited from continuing our
operations in the PRC.
   21




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##### Table of Contents




    
    revoking the business and operating licenses of such entities;
    
    discontinuing or restricting the conduct of any transactions among our
consolidated affiliated entities, our PRC subsidiaries and affiliated entities;
    
    imposing fines, confiscating the income of our consolidated affiliated entities or
our income, or imposing other requirements with which we, our consolidated affiliated
entities, our PRC subsidiaries or affiliated entities may not be able to comply;
    
    shutting down the network of our consolidated affiliated entities;
    
    requiring us or our PRC subsidiary and affiliated entities to restructure our ownership
structure or operations; or
  We rely on contractual arrangements with our consolidated affiliated entities in China, and
their equity holders, which may not be as effective in providing us with operational control
or enabling us to derive economic benefits as through ownership of controlling equity
interest.
      If VisionChina Media Group or Beijing Eastlong Advertising fails to honor its obligations
under the contractual arrangements with us, our advertising business may be severely and
adversely affected.
  Consolidation
  22




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The shareholders of our consolidated affiliated entities may have potential conflicts of interest
with us.
        Our contractual arrangements with our consolidated affiliated entities may be subject to
scrutiny by the PRC tax authorities and may result in a finding that we owe additional taxes or
are ineligible for tax exemption, or both, which could substantially increase our taxes owed
and thereby reduce our net income.
  23




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We rely principally on dividends and other distributions on equity paid by our wholly-owned
operating subsidiaries to fund any cash and financing requirements we may have, and any
limitation on the ability of our operating subsidiary to pay dividends to us could have a
material adverse effect on our ability to conduct our business.
    Risks Related to Doing Business in China
 Adverse changes in political and economic policies of the PRC government could have a
material adverse effect on the overall economic growth of China, which could reduce the
demand for our products and materially and adversely affect our competitive position.
  
    
    the degree of government involvement;
    
    the level of development;
    
    the growth rate;
    
    the control of foreign exchange;
    
    access to financing; and
    
    the allocation of resources.
 24




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##### Table of Contents



Uncertainties with respect to the PRC legal system could limit the protections available to you and
us.
  You may experience difficulties effecting service of legal process, enforcing foreign judgments
or bringing original actions in China based on United States or other foreign laws, against us,
our management or the experts named in this annual report.
  25




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##### Table of Contents



PRC regulation of loans and direct investment by offshore holding companies to PRC entities
may delay or prevent us from making loans or additional capital contributions to our PRC
operating subsidiary and affiliates.
  
    
    loans by us to foreign invested enterprises, such as our PRC subsidiaries cannot exceed
statutory limits and must be registered with the
PRC State Administration of Foreign Exchange, or SAFE, or its local counterparts; and
    
    loans by us to domestic PRC enterprises, such as our consolidated affiliated
entities, must be approved by the relevant government authorities and must also be
registered with SAFE or its local counterparts.
  PRC regulations relating to offshore investment activities by PRC residents may increase our
administrative burden and restrict our overseas and cross-border investment activity. If our
shareholders who are PRC residents fail to make any required applications and filings under
such regulations, we may be unable to distribute profits and may become subject to liability
under PRC laws.
   26




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If any of our PRC affiliates becomes the subject of a bankruptcy or liquidation proceeding, we
may lose the ability to use and enjoy those assets, which could reduce the size of our
advertising network and materially and adversely affect our business, ability to generate
revenues and the market price of our ADSs.
  Governmental control of currency conversion may affect the value of your investment.
  Fluctuations in exchange rates of the Renminbi could materially affect our reported results of
operations.
   27




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The discontinuation of any preferential tax treatment currently available to us and the
increase in the PRC enterprise income tax could decrease our net income and materially and
adversely affect our financial condition and results of operations.
   Dividends we receive from our subsidiary located in the PRC may be subject to PRC withholding tax.
  28




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We may be deemed a PRC resident enterprise under the EIT Law and be subject to PRC taxation on our
worldwide income.
  Guoshuifa [2009] No. 82, Notice on the Recognition of Overseas Incorporated Domestically
Controlled Enterprises as PRC Resident Enterprises Based on the Place of Effective Management
Criteria
   Dividends payable by us to our foreign investors and gain on the sale of our ADSs or common shares
may become subject to taxes under
PRC tax laws.
  We face risks related to natural disasters, health epidemics, terrorist attacks or other
events in China that may affect usage of public transportation, which could have a
material adverse effect on our business and results of operations.
  29




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##### Table of Contents



The implementation of the PRC Labor Contract Law may significantly increase our operating
expenses and adversely affect our business and results of operations.
  Risks Related to Our Common Shares and ADSs
 The market price for our ADSs may be volatile which could result in a loss to you.
  
    
    actual or anticipated fluctuations in our quarterly operating results;
    
    regulatory developments in China affecting us, our industry, our corporate structure or our
advertisers;
    
    announcements of competitive developments;
    
    announcements regarding litigation or administrative proceedings involving us;
    
    changes in financial estimates by securities research analysts;
    
    changes in the economic performance or market valuations of companies with comparable
businesses;
    
    addition or departure of our executive officers;
    
    release or expiry of lock-up or other transfer restrictions on our outstanding common shares or
ADSs; and
    
    sales or perceived sales of additional common shares or ADSs.
  Substantial future sales or perceived sales of our ADSs in the public market could cause the price
of our ADSs to decline.
  30




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Anti-takeover provisions in our charter documents may discourage acquisition of our
company by a third party, which could limit our shareholders opportunity to sell their
shares at a premium.
   We are a Cayman Islands company and, because judicial precedent regarding the rights of
shareholders is more limited under Cayman
Islands law than under U.S. law, you may have less protection of your shareholder rights than you
would under U.S. law.
  Judgments obtained against us by our shareholders may not be enforceable.
  31




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Holders of ADSs have fewer rights than shareholders and must act through the depositary to
exercise their rights.
  The depositary for our ADSs will give us a discretionary proxy to vote our common shares
underlying your ADSs if you do not vote at shareholders meetings, except in limited
circumstances, which could adversely affect your interests.
  
    
    we have failed to provide the depositary with our notice of meeting and related voting
materials in a timely fashion;
    
    we have instructed the depositary that we do not wish a discretionary proxy to be given;
    
    we have informed the depositary that there is substantial opposition to a matter to be voted on
at the meeting; or
    
    a matter to be voted on at the meeting would have a material adverse impact on shareholders.
  You may be subject to limitations on transfers of your ADSs.
  32




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Your right to participate in any future rights offerings may be limited, which may cause
dilution to your holdings and you may not receive cash dividends if it is impractical to make
them available to you.
   
 Item 4.
    
    Information on the Company
 A.
    
    History and Development of the Company
             www.visionchina.cn
 33




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B.
    
    Business Overview
 Overview
    34




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##### Table of Contents




    
    Exclusive agency modelrefers to our arrangements, with terms ranging up to 12 years,
in 20 cities: Beijing, Changchun, Changsha, Changzhou, Chengdu, Dalian, Guangzhou,
Hangzhou, Hong Kong, Nanjing, Ningbo, Shanghai , Shenyang, Shenzhen, Suzhou, Taiyuan,
Tianjin, Wuhan, Wuxi and Xiamen. We have entered into an exclusive advertising agency
agreement with the partner local mobile digital television company or local subway
authority in each city that typically gives us the exclusive right to sell all of the
advertising time on our local partners mobile digital television network located on
buses or subways. Our exclusive agency arrangements in Changzhou, Suzhou, Wuxi and
Xiamen that gives us the exclusive right to sell a portion of the advertising time that
does not include sales of advertising time to local advertisers within each respective
city. For our supplemental subway advertising operations, we have also entered into an
exclusive advertising agency agreement with the partner subway authority or partner
local mobile digital television company in subway trains and platforms in Beijing,
Guangzhou, Nanjing, Shenzhen and Tianjin and in subway trains in Hong Kong.
    
    Direct investment modelrefers to our arrangements in 12 cities, among which we and a
partner local television station, or its affiliate, have formed a jointly-owned mobile
digital television operating company in which we hold a minority equity interest in 11
cities, and we and a partner local subway authority have formed a jointly-owned mobile
digital television operating company in which we hold a controlling interest in 1 city,
i.e., Chongqing. We refer to these jointly-owned mobile digital television operating
companies as direct investment entities in this annual report. This model gives us the
opportunity to work in conjunction with the local television station to provide programs
to meet the demands of our audience and advertising clients. In the majority of our
direct investment cities, such as Changchun, Changzhou, Chengdu, Dalian,
Ningbo, Shenzhen, Suzhou, Wuhan and Wuxi, we have also entered into an exclusive agency
agreement with our direct investment entity to secure the exclusive right to sell
advertising time on that network. For the cities where we have not entered into an
exclusive agency agreement, we purchase advertising time at commercial prices from our
direct investment entities and resell them to our advertising clients.
    
    Outreach agency modelrefers to our operations in other cities where we purchase
advertising time from an existing mobile digital television company or other advertising
service providers outside of our network, either directly or through an agent at the
request of our clients. This model works in conjunction with our network arrangements to
extend the reach of our advertising operations to cover substantially all of the major
advertising markets in China.
  35




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Our Advertising Network
  
 Our Mobile Digital Television Advertising Network Cities
    
    Exclusive Agency
    
    Direct InvestmentBeijing (bus)
    
    
    üBeijing (seven subway lines)(1)
    
    
    üChangchun
    
    
    ü
    
    
    
    üChangsha(2)
    
    
    üChangzhou(3)
    
    
    ü
    
    
    
    üChengdu
    
    
    ü
    
    
    
    üDalian
    
    
    ü
    
    
    
    üGuangzhou
    
    
    ü
 36




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##### Table of Contents



Our Mobile Digital Television Advertising Network Cities
    
    Exclusive Agency
    
    Direct InvestmentNanjing
    
    
    üNanjing (subway Line 1)(4)
    
    
    üNingbo
    
    
    ü
    
    
    
    üShanghai (subway)(5)
    
    
    üShenyang
    
    
    üShenzhen
    
    
    ü
    
    
    
    üShenzhen
(subway train in Line 1)(6)
    
    
    ü
    
    
    
    üSuzhou(7)
    
    
    ü
    
    
    
    üTaiyuan
    
    
    üWuhan
    
    
    ü
    
    
    
    üWuxi(8)
    
    
    ü
    
    
    
    üXiamen(9)
    
    
    üZhengzhou
    
    
    
    
    
    
    ü
 
 (1)
    
    Our exclusive agency arrangement in the Beijing subway gives us the exclusive right
to sell all the advertising time on the mobile digital television network in seven lines
of the Beijing subway (Line 1,Line 2, Line 5, Line 10, Line 13, the Batong Line and the
Olympic Line) from August 1, 2010 to July 31, 2015.(2)
    
    Our exclusive agency agreement in Changsha gives us the exclusive rights to sell all
the advertising time on Changshas mobile digital television network from January 1,
2010 to December 31, 2012.(3)
    
    Our exclusive agency arrangement in Changzhou gives us the exclusive right to sell a
portion of the advertising time on Changzhous mobile digital television network to
advertisers excluding those from Changzhou from January 1, 2010 to March 18, 2017.(4)
    
    Our exclusive agency arrangement in the Nanjing subway Line 1, which was acquired
through our acquisition of Digital Media Group, gives us the exclusive right to sell all
of the advertising time on the mobile digital television network in Line 1 of the Nanjing
subway from January 2, 2010 to August 31, 2013.(5)
    
    Our exclusive agency arrangement in the Shanghai subway, which was acquired through our
acquisition of Digital Media Group, gives us the exclusive right to sell all of the
advertising time on the mobile digital television network in 13 lines of the Shanghai
subway from January 2, 2010 to December 31, 2013.(6)
    
    Our exclusive agency arrangement in Shenzhen for subway trains in Line 1, which was
acquired through our acquisition of Digital Media Group, gives us the exclusive right to
sell all of the advertising time on the mobile digital television network in Line 1 of
the Shenzhen subway from January 2, 2010 to December 31, 2012.(7)
    
    Our exclusive agency arrangement in Suzhou gives us the exclusive right to sell a
portion of the advertising time on Suzhous mobile digital television network,
excluding sales of advertising time to advertisers from Suzhou.(8)
    
    Our exclusive agency arrangement in Wuxi gives us the exclusive right to sell a
portion of the advertising time on Wuxis mobile digital television network to
advertisers, excluding sales of advertising time to advertisers from Wuxi.(9)
    
    Our exclusive agency agreement in Xiamen gives us the exclusive rights to sell a
portion of the advertising time on the mobile television network operated by Xiamen TV
Digital Co., Ltd., from October 1, 2009 to December 31, 2012, to non-Xiamen based
national advertisers.(10)
    
    We terminated the exclusive agency agreement in Shanghai for bus stop shelters at the
end of 2010. We terminated the exclusive agency arrangements in Hangzhou for bus from
February 1, 2010. We did not choose to renew the exclusive agency arrangement in Tianjin
for bus at the end of 2010. 37




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Our Supplemental Subway Advertising Platform Cities
    
    Exclusive Agency
    
    Direct InvestmentBeijing (subway Line 4)(1)
    
    
    üChongqing(2)
    
    
    ü
    (2011)
    
    
    üGuangzhou(3)
    
    
    üHong Kong(4)
    
    
    üShenzhen (subway Line 4)(5)
    
    
    üShenzhen (three subway lines)(6)
    
    
    üTianjin(7)
    
    
    üNanjing
(Line 2 and southern extended line of
Line 1)(8)
    
    
    ü
 
 (1)
    
    Our exclusive agency arrangement in Beijing Subway Line 4 gives us the
exclusive right to sell all of the advertising time on the television platform in
subway Lines 4 of the Beijing subway.(2)
    
    Our arrangement in Chongqing, which was entered into in April
2011, gives our direct investment entity the exclusive right to
sell all of the advertising time on the television platform in Chongqings Light Rail
Line 2 which is currently in use and two light rail lines in which will be put into use in
the future.(3)
    
    Our exclusive agency arrangements give us the exclusive right with respect to the
digital displays on the subway platforms and in the subway trains in Guangzhou and
large digital displays located in the subway stations in Guangzhou. In April 2011, we
renewed the exclusive agency arrangement in Guangzhou subway for a five-year term
effective from May 1, 2011 and expanded our coverage to all of 8 subway lines in
Guangzhou.(4)
    
    Our exclusive agency arrangements in Hong Kong give us the exclusive right to sell
all of the advertising time on the television platform in the Kowloon Through Train and
Airport Express Line in Hong Kong. The exclusive agency arrangement for the Airport
Express Line will be expired on June 30, 2011.(5)
    
    Our exclusive agency arrangement in Shenzhen Line 4 gives us the exclusive right to
sell all the advertising time on the television platform in Line 4 of the Shenzhen
subway.(6)
    
    In March 2011,we signed an exclusive agency arrangement with Shenzhen subway, which
gives us the exclusive right to sell all the advertising time in subway platforms in
Line 1 , and in subway platforms and subway trains in Line 2 and Line 5 from July
1,2011 to June 30, 2016. We had the exclusive right to sell all the advertising time in
subway platforms in Line 1 from June 1, 2007 up to June 30, 2011 from former exclusive
agency arrangement.(7)
    
    Our exclusive agency arrangements in Tianjin give us the exclusive right to sell all of
the advertising time on the television platform in Line 1 and in Light Rail Jinbin Line
of the Tianjin subway.(8)
    
    Our exclusive agency arrangements in Nanjing give us the exclusive right to sell all of the
advertising time on the television platform in Line 2 and in the southern extended line of
Line 1 of the Nanjin subway for a period of ten year starting from May 28, 2010.   Our Advertising Network
  Our Exclusive Agency Cities
  38




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
    
    We typically pay a pre-determined media cost each year to the mobile digital
television company to receive the exclusive right to place advertisements on that
network.
    
    We have the responsibility to invest in new digital television displays and install
the displays in new buses in Beijing, Guangzhou, Nanjing, Shenyang and Shenzhen. For our
supplemental subway advertising operations acquired in connection with our acquisition
of Digital Media Group, we have the responsibility to install displays in the subway
trains and platforms in Beijing (Line 4), Hong Kong, Chongqing, and
Tianjin, as well as displays in the subway trains of Nanjing
Line 2 and southern extended line of Line 1, and we have
the responsibility to upgrade displays in Nanjing. Most of these displays were installed
and upgraded prior to our acquisition of Digital Media Group.
    
    We either sign a contract directly with the local mass transportation companies or
our local partner or our direct investment entity signs the contract with the local
mass transportation companies and assigns the right to install displays to us.
    
    Our local partner or our direct investment entity makes the investment to construct
the broadcasting infrastructure and arranges the necessary approvals from the
regulatory agencies.
    
    Our local partner or our direct investment entity remains responsible for all of the
broadcast programs besides advertising content, but we may provide suggestions for the
purpose of maximizing the effectiveness of our advertising network.
  39




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##### Table of Contents



Our Direct Investment Cities
  
    
    We appoint the general managers, for appointment by the boards of directors, of most of the
direct investment entities.
    
    We train the locally recruited sales force.
    
    We purchase the advertising time from our direct investment entity and place advertisements for
broadcasting on the local network.
    
    We sell the assembled digital television displays to the direct investment entity.
    
    The local television station obtains the necessary approvals for operating the mobile digital
television station.
    
    The local television station provides the transmission equipment to broadcast the advertising
and program in that city.
    
    The direct investment entity enters into contracts with the local mass transportation
companies to install our digital television displays in the buses and other suitable
locations.
    
    The local television station provides the news, entertainment and other programs
for broadcasting on the direct investment entitys network, and the local television
station ensures that the programs conform to applicable PRC content laws and
regulations.
 40




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Our Outreach Agency Cities
   Advertising Clients, Sales and Marketing
 Our Advertising Clients
   41




---



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% of total advertisingIndustry
    
    service revenuesFood, Beverage, Restaurants, Wines and Spirits
    
    
    26.0
    %Pharmaceutical and Nutritional Supplements
    
    
    27.9
    %Household Products
    
    
    8.9
    %Fashion and Accessories
    
    
    7.2
    %Electronics and Digital Products
    
    
    6.9
    %Financial Services
    
    
    3.7
    %Tourism
    
    
    3.3
    %IT and internet
    
    
    1.3
    %Others
    
    
    14.8
    %
 Sales and Marketing
    Advertising Contracts
  42




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Programming
   Relationships with Location Providers
  Our Exclusive Agency Cities
  Our Direct Investment Cities
  43




---



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Technology
  Suppliers
   Competition
    44




---



##### Table of Contents



Intellectual Property
  Insurance
  Regulation
  Regulations on the Television Industry
 Television content
  Foreign investment in television operations
   45




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##### Table of Contents



Foreign investments in television content production
   Mobile digital television
  
    
    no experimental mobile digital television shall be operated without approval of SARFT;
    
    no formal operation of mobile digital television shall be conducted before the
establishment and adoption of the national standard of mobile digital television;
    
    no foreign investment in mobile digital television operations is permitted;
    
    after the adoption of the national mobile digital television standard, all mobile
digital television operations shall comply with such national standard; and
    
    existing mobile digital television network operations must apply for SARFT approval
before April 30, 2006, and must stop operating by June 15, 2006 if they failed to
submit an application by April 30, 2006 or their application was disapproved by SARFT.
    46




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Regulations on the Advertising Industry
 Foreign investments in advertising
   Advertising content
  47




---



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Tax
   48




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Regulations on Foreign Currency Exchange
 Foreign currency exchange
  49




---



##### Table of Contents



Foreign exchange registration of offshore investment by PRC residents
    Dividend Distribution
  C.
    
    Organizational Structure
  50




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##### Table of Contents



D.
    
    Property, Plant and Equipment
   
 Item 4A.    Unresolved Staff Comments
  
 Item 5.    Operating and Financial Review and Prospects
 You should read the following discussion and analysis of our financial condition and
results of operations in conjunction with our consolidated financial statements and the related
notes included elsewhere in this annual report. This discussion may contain forward-looking
statements based upon current expectations that involve risks and uncertainties. Our actual
results may differ materially from those anticipated in these forward-looking statements as a
result of various factors, including those set forth under Item 3. Key InformationD. Risk
Factors or in other parts of this annual report.
 51




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##### Table of Contents



A.
    
    Operating Results
 Overview
    
    
    the overall economic growth in China, which we expect to contribute to an increase in
advertising spending in major urban areas in China where consumer spending is concentrated;
    
    our ability to establish and maintain business relationships with our local
operating partners, and our and their ability to establish and maintain business
relationships with mass transportation companies;
    
    our ability to expand our network and supplemental subway advertising platform into new
locations and additional cities;
    
    our ability to secure exclusive agency arrangements with mobile digital
television companies in additional cities to control the advertising time on that
network;
    
    our ability to respond to competitive pressures and to compete effectively when expanding the
reach of our network;
    
    our ability to increase sales of advertising time and extend the total minutes
available for broadcasting of advertisements across all of our cities;
    
    our ability to attract more revenues from our existing clients and expand our client base
through promotion of our services;
    
    our ability to provide programs that appeal to the local viewers;
    
    our ability to enhance the technology of our network to make our advertising platform more
effective; and
 52




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
    
    our ability to acquire companies that operate advertising businesses complementary to our
existing operations.
   Revenues
  53




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For the year ended December 31,2008
    
    2009
    
    2010% of
    
    
    
    
    
    % of
    
    
    
    
    
    % oftotal
    
    
    
    
    
    total
    
    
    
    
    
    totalUS$
    
    revenues
    
    US$
    
    revenues
    
    US$
    
    revenuesRevenues:Advertising service revenue
    
    
    103,515,250
    
    
    
    99.5
    
    
    
    120,686,086
    
    
    
    100.0
    
    
    
    138,056,640
    
    
    
    100.0Advertising equipment revenue
    
    
    565,392
    
    
    
    0.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    104,080,642
    
    
    
    100.0
    
    
    
    120,686,086
    
    
    
    100.0
    
    
    
    138,056,640
    
    
    
    100.0
 Advertising Service Revenue
     Factors that Affect Our Advertising Service Revenue
 
    
    Advertising Time. The total advertising time available across all of our cities
determines our total capacity and affects our advertising service revenue. Any future
expansion of our network or non-broadcast advertising platform into new cities will
increase the total advertising time available across all of our cities and affect our
advertising service revenue. Geographic expansion of our network or supplemental subway
advertising platform also allows us to attract more advertising clients by providing
greater geographic coverage and exposure.Our ability to expand into new cities will affect the total advertising time available
across our network and our supplemental subway advertising platform. Our management has
implemented certain measures to facilitate our entrance into new markets. We maintain a
special team of employees to focus on our network expansion efforts. In conjunction with
the members of our management, this team consults with prospective partners to develop
relationships, secure contractual agreements and assist in the deployment and maintenance
of our network.
    
    Actual Price of Advertising Time. The price that we actually charge our clients for
our advertising time directly affects our advertising service revenue. The listed prices
for advertising time on our network and supplemental subway advertising platform vary
significantly from city to city as income levels, standards of living and general
economic conditions vary significantly from region to region in China. In accordance with
standard industry practice, we offer discounts to our clients on an individual basis, so
the actual price we charge for our advertising time after taking into account any
discounts will affect our advertising service revenue.
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
    
    Demand for advertising time on our network and supplemental subway advertising
platform. The demand for our advertising time directly affects the actual price of our
advertising time and is affected by a variety of factors, including general and economic
conditions and certain special events that may cause significant changes in the number
of riders in the mass transportation systems of our network cities. Special events, such
as the 2010 Asian Games in Guangzhou, may affect our actual price of advertising time.
Such special events may draw more viewers to our real-time broadcasts, making our
advertising network more effective. Conversely, any adverse events, such as an outbreak
of an airborne disease or public safety concerns, may impact usage of mass
transportation systems and have an adverse effect on our actual price of advertising
time. Demand for our advertising services also varies according to the time of day, with
higher demand typically during morning and evening commute times. Demand for advertising
time on our network may also be impacted by corresponding demand on other advertising
outlets such as traditional television.
    
    Number of displays in each city. The number of displays in each of our cities affects our
actual price of advertising time in that city.
An increase in the number of displays will reach a larger audience and make
advertisements more effective. We expect that our actual price of advertising time will
increase as the number of displays increases.
    
    Quality of programs. The quality of the programs broadcast on our network and
supplemental subway advertising platform affects our actual price of advertising time.
Programs that attract the attention of our audience will make our advertising platform
more effective. Our ability to locate, edit and provide suitable programs that appeal to
our intended audience will affect our actual price of advertising time. We have
undertaken steps to increase the quality of programs broadcast on our network by
providing suggestions to the local television stations that provide the programs.
    
    Programming to Advertising Ratio. The mixture of programming to advertising that
gets broadcasted on our network and supplemental subway advertising platform affects
our advertising service revenue. Broadcasting an optimal mix of advertising and
programs will maximize our total revenues.
    
    Maximizing sales of soft advertisements. We began sales of soft advertising in July
2007, and our ability to maximize sales of soft advertisements such as advertisements
embedded within the programs and sponsorships of the programs on our network will allow
us to realize additional revenues from the time reserved for broadcasts of programs.
Increasing our sales of such advertisements is expected to help increase our average
revenue per hour.
 Advertising Equipment Revenue
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Factors that Affect Our Advertising Equipment Revenue
 
    
    Addition of New Direct Investment Entities. The addition of new direct investment
entities directly affects our advertising equipment revenue. We only sell our digital
television displays to our direct investment entities for installation into buses of the
citys mass transportation system and other locations. We anticipate higher sales of our
digital television displays in the earlier stages of the direct investment entitys
operations during the expansion of the mobile digital television network in that city.
Accordingly, as the operations of our direct investment entities reach a greater scale,
we expect the sales of our digital television displays to decrease.
    
    Network Expansion of Direct Investment Entities. The pace of network expansion at
each of our direct investment entities directly affects our advertising equipment
revenue. Since the vast majority of our direct investment entities purchase the digital
television displays exclusively from us, any expansion of the mobile digital television
network will generate advertising equipment revenue for us. In addition, our direct
investment entities will need to purchase new digital television displays from us to
replace their worn or obsolete equipment.
    
    Cost of Equipment. Since we sell our digital television displays at our procurement
cost plus a fixed percentage markup, any changes to the cost of our equipment will
directly affect our advertising equipment revenue.
 Cost of Revenues
  For the year ended December 31,2008
    
    2009
    
    2010% of total
    
    
    
    
    
    % of total
    
    
    
    
    
    % of totalUS$
    
    revenues
    
    US$
    
    revenues
    
    US$
    
    revenuesTotal Revenues
    
    
    104,080,642
    
    
    
    100.0
    
    
    
    120,686,086
    
    
    
    100.0
    
    
    
    138,056,640
    
    
    
    100.0Cost of revenues:Advertising service cost
    
    
    40,602,022
    
    
    
    39.0
    
    
    
    61,104,381
    
    
    
    50.6
    
    
    
    121,000,454
    
    
    
    87.6Advertising equipment
cost
    
    
    475,432
    
    
    
    0.5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total cost of revenues
    
    
    41,077,454
    
    
    
    39.5
    
    
    
    61,104,381
    
    
    
    50.6
    
    
    
    121,000,454
    
    
    
    87.6Gross profit
    
    
    63,003,188
    
    
    
    60.5
    
    
    
    59,581,705
    
    
    
    49.4
    
    
    
    17,056,186
    
    
    
    12.4
 Advertising Service Cost
  Media Costs .
 
    
    payments to our exclusive agency partner companies under our
contractual arrangements to purchase the advertising time on that network;
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
    
    payments to our direct investment entities under our contractual arrangements to purchase
advertising time; and
    
    payments to mobile digital television companies and other advertising service
providers outside of our network, either directly or through third-party advertising
agencies, to purchase advertising time pursuant to the requests of our advertisers.
  
    
    The number of exclusive agency cities represents the largest factor affecting our
media costs. When we enter into an exclusive agency arrangement with a mobile digital
television company, we typically commit to a pre-determined annual
media cost in
exchange for the exclusive right to place advertisements on all of the time available
for advertisements on that network. We expect the number
of our exclusive agency cities to increase in future periods as we enter into exclusive
agency arrangements with our direct investment entities and with additional mobile digital
television companies in new cities. As a result, we expect our media
cost to
increase in future periods.
    
    The amount of advertising time that we purchase from our direct investment entities
and other mobile digital television companies outside of our network also affect our
media costs. For our direct investment entities without exclusive agency agreements, we
purchase advertising time according to our needs to place advertisements on behalf of
our clients. For the mobile digital television companies and other advertising service
providers outside of our network, we purchase time at the request of our advertising
clients to place advertisements in that city.
 Depreciation
 Business Taxes and Surcharges
 Amortization of Intangible Assets .
 Other Operating Costs
 Advertising Equipment Cost
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Other Factors Affecting Our Results of Operations
  Operating Expenses
  For the year ended December 31,2008
    
    2009
    
    2010% of total
    
    
    
    
    
    % of total
    
    
    
    
    
    % of totalUS$
    
    revenues
    
    US$
    
    revenues
    
    US$
    
    revenuesTotal revenues
    
    
    104,808,642
    
    
    
    100.0
    
    
    
    120,686,086
    
    
    
    100.0
    
    
    
    138,056,640
    
    
    
    100.0Gross profit
    
    
    63,003,188
    
    
    
    60.5
    
    
    
    59,581,705
    
    
    
    49.4
    
    
    
    17,056,186
    
    
    
    12.4Operating expensesSelling and marketing expenses
    
    
    14,711,536
    
    
    
    14.0
    
    
    
    24,620,897
    
    
    
    20.4
    
    
    
    28,315,592
    
    
    
    20.5General and administrative expenses
    
    
    5,414,571
    
    
    
    5.2
    
    
    
    7,425,222
    
    
    
    6.2
    
    
    
    9,499,717
    
    
    
    6.9Impairment loss on intangible assets and goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    145,720,504
    
    
    
    105.5Total operating expenses
    
    
    20,126,107
    
    
    
    19.2
    
    
    
    32,046,119
    
    
    
    26.6
    
    
    
    183,535,813
    
    
    
    132.9
 Selling and Marketing Expenses
 General and Administrative Expenses
 Impairment Loss on Intangible Assets and Goodwill .
    Government Grants and Subsidies
     Share-based Compensation
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Loss from Equity Method Investees
   Taxation
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Critical Accounting Policies
    Depreciation of fixed assets
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
    
    Media display equipment  5 years
    
    Computers and office equipment  5 years
    
    Motor vehicles  5 years
    
    Leasehold improvements  lesser of lease terms or the estimated useful lives of the assets
  Investments under equity method
    Other investments
  Goodwill and intangible assets
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Intangibles  Goodwill and Other Intangible Assets.
  Income taxes
     
    
    The provision of technical support service by our PRC wholly owned subsidiary to our
consolidated VIEs will cause an expense in the consolidated VIEs, resulting in the
majority of the undistributed earnings of the consolidated VIEs being transferred to
us without incurring any additional income tax expense on the basis that our PRC wholly
owned subsidiary and the consolidated VIEs are in the same tax jurisdiction and subject to
the same income tax rate although such transaction may incur additional business tax
expense to us. The price of the technical support service will be determined on an arms
length basis.
    
    We would ensure the significant existing contracts, including the exclusive agency
agreements and the contracts for direct investment arrangements to be signed or renewed
upon expiry of such contracts by our new VIEs, so that all the operations in the
existing consolidated VIEs will be taken by the new VIEs without resulting any capital
gain subject to income taxes; and
    
    We or our wholly owned PRC subsidiaries exercise the call option to acquire all the equity interests in the existing consolidated VIEs
from their shareholders after all the operations have been transferred to the new VIEs. Without any operations or substantial
remaining undistributed earnings, the purchase price for the existing consolidated VIEs will approximate their paid-in capital, in which
case it is more likely than not that no gain will be noted and thus no income tax expense will be incurred.
 Share-based compensation
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Allowance for doubtful accounts
  Results of Operations
  For the Year Ended December 31,2008
    
    2009
    
    2010(US$, except number of shares)Condensed Consolidated Statement of Operations DataRevenuesAdvertising service revenue
    
    
    103,515,250
    
    
    
    120,686,086
    
    
    
    138,056,640Advertising equipment revenue
    
    
    565,392
    
    
    
    
    
    
    
    Total revenues
    
    
    104,080,642
    
    
    
    120,686,086
    
    
    
    138,056,640Cost of revenuesAdvertising service cost
    
    
    (40,602,022
    )
    
    
    (61,104,381
    )
    
    
    (121,000,454
    )Advertising equipment cost
    
    
    (475,432
    )
    
    
    
    
    
    
    Total cost of revenues
    
    
    (41,077,454
    )
    
    
    (61,104,381
    )
    
    
    (121,000,454
    )Gross profit
    
    
    63,003,188
    
    
    
    59,581,705
    
    
    
    17,056,186Operating expenses
    
    
    (20,126,107
    )
    
    
    (32,046,119
    )
    
    
    (183,535,813
    )
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For the Year Ended December 31,2008
    
    2009
    
    2010(US$, except number of shares)Government grant
    
    
    
    
    
    
    538,085
    
    
    
    Loss from equity method investees
    
    
    (484,969
    )
    
    
    (998,606
    )
    
    
    (109,989
    )Operating profit (loss)
    
    
    42,392,112
    
    
    
    27,075,065
    
    
    
    (166,589,616
    )Interest income
    
    
    3,480,212
    
    
    
    1,860,017
    
    
    
    2,082,605Interest expense
    
    
    
    
    
    
    (109,590
    )
    
    
    (4,952,239
    )Government grant
    
    
    672,515
    
    
    
    
    
    
    
    Other expenses
    
    
    (38,491
    )
    
    
    (1,278
    )
    
    
    Net income (loss) before income taxes
    
    
    46,506,348
    
    
    
    28,824,214
    
    
    
    (169,459,250
    )Income tax benefit (expense)
    
    
    212,325
    
    
    
    (2,348,254
    )
    
    
    18,202,289Net income (loss)
    
    
    46,718,673
    
    
    
    26,475,960
    
    
    
    (151,256,961
    )Net loss (income) attributable to noncontrolling interest
    
    
    91,277
    
    
    
    127,043
    
    
    
    (81,261
    )Net income (loss) attributable to VisionChina Media Inc. shareholders
    
    
    46,809,950
    
    
    
    26,603,003
    
    
    
    (151,338,222
    )Net income (loss) per share: Basic
    
    
    0.67
    
    
    
    0.37
    
    
    
    (1.83
    ) Diluted
    
    
    0.65
    
    
    
    0.37
    
    
    
    (1.83
    )Weighted average number of shares used in computation of net income (loss) per share: Basic
    
    
    70,064,663
    
    
    
    71,686,900
    
    
    
    82,739,234 Diluted
    
    
    72,404,916
    
    
    
    72,676,438
    
    
    
    82,739,234Share-based compensation expenses during the related periods included in: Cost of revenues
    
    
    39,847
    
    
    
    63,477
    
    
    
    100,711 Selling and marketing expenses
    
    
    1,163,623
    
    
    
    3,698,329
    
    
    
    432,632 General and administrative expenses
    
    
    263,585
    
    
    
    570,305
    
    
    
    414,162
 Year Ended December 31, 2010 Compared to Year Ended December 31, 2009
 Total Revenues
 
    
    Our advertising service revenue increased to US$138.1 million in 2010 from US$120.7
million in 2009. The increase in advertising service revenue is primarily the combined
effect of (1) increased sales of advertising time on our mobile digital television
advertising network achieved by the expansions of our sales and advertising networks;
(2) a significant decline in customer demand, intense pricing pressure and increasing
competition of our Peak, Goldwhite and Ahead reporting units due to the change in
relevant regulations in the PRC in 2010.In 2010, by acquiring Digital Media Group, we expanded our network and started to
sell advertising time on the subway platforms in the cities of Shanghai, Nanjing,
Tianjin, Chongqing and Hong Kong. We also sold additional advertising time in the
subway lines in Beijing and Shenzhen which were previously operated by Digital Media
Group. As of December 31, 2010, we provided advertising services through our network
and supplemental subway advertising platform with approximately 137,395 digital
displays in 23 cities in the PRC, compared to 89,299 digital displays in 19 cites as
of December 31, 2009.As a result of the aforementioned significant decline in customer demand, intense
pricing pressure and increasing competition due to the change in relevant regulations
in the PRC in 2010, we recorded impairment loss in the aggregate of US$81.6 million
against the goodwill allocated to the Peak, Goldwhite and Ahead reporting units, and
impairment loss of US$7.5 million against the intangible assets arising from the
acquisitions of Peak, Goldwhite and Ahead, in the second quarter of 2010.
    
    We did not generate any advertising equipment revenue in 2010, same as that in 2009,
as our existing direct investment entities completed the initial expansion of their
local networks and scaled back their purchases of digital television displays and
related equipment from us.
 Cost of Revenues
 
    
    Our media cost increased to US$97.8 million in 2010 from US$49.9 million in
2009. We experienced an increase in media cost primarily due to a large increase in
the amount of media cost paid to our exclusive agency partner companies to
secure advertising time. Our network rental fees for our exclusive agency cities
increased to US$91.9 million in 2010 from
US$43.3 million in 2009. The number of cities operating under our exclusive
agency model increased to 20 cities as of
December 31, 2010 from 16 cities as of December 31, 2009, which is primarily
attributable to our acquisition of Digital Media Group in January 2010. We also
attribute a portion of the increase in our media cost to the annual increase in the
amount of media cost under the terms of our contracts with our exclusive
agency partner companies in our existing cities. Our media cost in cities operating
under our direct investment and outreach agency models, which require us to purchase
the advertising time from the local mobile digital television network operating in
those cities, remained stable in 2010 compared to that in 2009.
    
    Our depreciation increased to US$3.4 million in 2010 from US$1.8 million in
2009 as a result of the increase in the number of digital television displays
located in our exclusive agency cities.
    
    Our business tax decreased to US$3.2 million in 2010 from US$6.8 million in
2009, which is mainly because the effect of increase. in media cost outweighed the
increase in our advertising service revenue.
    
    Our amortization of intangible assets amounted to US$10.2 million in 2010,
compared to nil in 2009. In connection with our acquisition of Digital Media Group
in January 2010, we recorded the concession contracts acquired from Digital Media
Group as intangible assets. The cost of these intangible assets was measured at
the estimated fair value of the concession contracts of US$90.9 million on the
acquisition date, and is amortized over its expected useful life of 9 years using
straight line method. The amortization of such intangible assets is recorded
within advertising service cost. There was no amortization of intangible assets
recorded in advertising service cost in 2009.
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
    
    Our other operating costs mainly include salaries and expenses related to
installation and maintenance of the displays in our network, and increased to US$6.4
million in 2010 from US$2.7 million in 2009, primarily due to the expansion of our
network into new cities and also in the cities where we already operated.
 Gross Profit.
 Operating Expenses.
 
    
    Selling and Marketing Expenses.Selling and marketing expenses increased to US$28.3
million in 2010 from US$24.6 million in 2009. Our selling and marketing expenses
increased primarily due to the overall increase in sales activities and the expansion
of our sales force as a result of our acquisition of Digital Media Group. The number of
our selling and marketing employees increased to 585 as of December 31, 2010 from 368
as of December 31, 2009.
    
    General and Administrative Expenses.General and administrative expenses increased to US$9.5
million in 2010 from US$7.4 million in 2009.
The increase in our general and administrative expenses was mainly due to the increase
in the size of our administrative staff and infrastructure to support our growing
operations.
    
    Impairment Loss on Intangible Assets and Goodwill.We recorded impairment loss on our
intangible assets and goodwill totaling US$145.7 million in 2010, but we did not incur such
impairment loss in 2009.In the second quarter of 2010, we recorded impairment charge of US$89.1 million against the
goodwill and intangible assets for three out of the six acquired advertising agency
businesses, namely, Peak, Goldwhite and Ahead. Due to the change in relevant regulations in
the PRC in 2010, there was a significant decline in customer demand, intense pricing pressure
and increasing competition of Peak, Goldwhite and Ahead reporting units which indicated the
potential impairment loss on the goodwill and intangible assets of these reporting units. We
therefore performed impairment analysis for these reporting units in June 2010. Accordingly,
we recorded impairment loss in aggregate of US$81.6 million against the goodwill allocated to
the Peak, Goldwhite and Ahead reporting units, and impairment loss in aggregate of US$7.5
million against the intangible assets arising from the acquisitions of Peak, Goldwhite and
Ahead. The remaining three acquired agencies are not subject to impairment loss.When we performed annual impairment test for the Digital Media Group reporting unit in
December 2010, we determined that the poorer than expected performance of the Digital Media Group reporting unit led
to a potential impairment of the goodwill and intangible assets in connection with our acquisition
of Digital Media Group. In addition, we believed that there was false, deceptive and misleading
information concerning Digital Media Groups financial condition and performance provided by the
former management and selling shareholders of Digital Media Group, and as a result, we launched a
lawsuit against the selling shareholders of Digital Media Group in December 2010. As
a result of our impairment test, we recorded impairment loss of US$14.9 million against the
goodwill of allocated to the Digital Media Group reporting unit in December 2010. In
addition, we also recorded impairment charge of US$41.7 million against the intangible assets
arising from our acquisition of Digital Media Group.
 Loss from Equity Method Investees.
 Operating Profit (Loss).
 Interest Income.
 Interest Expense.
 Income Taxes.
 Net Loss (Income) Attributable to Noncontrolling Interest.
 Net Income (Loss) Attributable to VisionChina Media Inc. Shareholders.
 Year Ended December 31, 2009 Compared to Year Ended December 31, 2008
 Total Revenues
 
    
    Our advertising service revenue increased to US$120.7 million in 2009 from US$103.5
million in 2008. We experienced an increase in advertising service revenue primarily as
a result of increased sales of advertising time on our mobile digital television
advertising network achieved by the expansions of our strong sales and advertising
networks in 2009 and acquisitions of six advertising agency businesses in 2008. In 2009,
we expanded our operations to include additional advertising time on buses in Hangzhou,
Tianjin, Suzhou and Xiamen and additional subway advertising time in Beijing. The six
advertising agency businesses we acquired in 2008 contributed to 56% and 53% of our
total revenues in 2008 and 2009, respectively.
    
    We did not generate any advertising equipment revenue in 2009, compared with US$0.6
million in 2008, as our existing direct investment entities completed the initial
expansion of their local networks and scaled back their purchases of digital television
displays and related equipment from us.
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Cost of Revenues
 
    
    Our advertising service cost increased significantly to US$61.1 million in 2009 from US$40.6
million in 2008.
 
    
    Our media cost increased to US$49.9 million in 2009 from US$30.9 million in
2008. We experienced an increase in media cost primarily due to a large increase in
the amount of media cost paid to our exclusive agency partner companies to
secure advertising time. Our media cost for our exclusive agency cities
increased to US$43.3 million in 2009 from
US$28.0 million in 2008. The number of cities operating under our exclusive
agency model increased to 16 cities as of
December 31, 2009 from 12 cities as of December 31, 2008. To a lesser extent, we also
attribute the increase in our media cost to increased demand for advertising time in
cities operating under our direct investment and outreach agency models that require
us to purchase the advertising time from the local mobile digital television network
operating in that city. We also attribute a
portion of the increase in our media cost to the annual increase in
the amount of media cost under the terms of our
contracts with our exclusive agency partner
companies in our existing cities.
    
    Our depreciation increased to US$1.8 million in 2009 from US$1.2 million in
2008 as a result of the increase in the number of digital television displays
located in our exclusive agency cities.
    
    Our business tax increased to US$6.8 million in 2009 from US$6.3 million in 2008 as a
result of the increase in our revenues.
    
    Our other operating costs include salaries and expenses related to
installation and maintenance of the displays in our network and increased to US$2.7
million in 2009 from US$2.2 million in 2008, primarily due to the expansion of our
network into new cities and also in the cities where we already operated.
 Gross Profit.
 Operating Expenses.
 
    
    Selling and Marketing.Selling and marketing expenses increased to US$24.6 million
in 2009 from US$14.7 million in 2008. Our selling and marketing expenses increased
mainly due to expansion of our sales force and strengthening its sales capabilities,
and the overall increase in sales activities in a challenging market environment in
2009. The number of our selling and marketing employees increased to 368 as of December
31, 2009 from 300 as of December 31, 2008.
    
    General and Administrative.General and administrative expenses increased to US$7.4 million in
2009 from US$5.4 million in 2008.
Our general and administrative expenses increased mainly due to the increase in the size
of our administrative staff and infrastructure to support our growing operations.
 Loss from Equity Method Investees.
 Operating Profit.
 Interest Income.
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Income Taxes.
 Net loss attributable to non-controlling interest.
 Net Income Attributable to VisionChina Media Inc. Shareholders.
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B.
    
    Liquidity and Capital Resources
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For the Year Ended December 31,2008
    
    
    2009
    
    
    2010(US$)Net cash provided by (used in) operating activities
    
    
    24,329,809
    
    
    
    39,397,267
    
    
    
    (22,210,745
    )Net cash used in investing activities
    
    
    (21,762,467
    )
    
    
    (170,649,621
    )
    
    
    (29,628,601
    )Net cash provided by financing activities
    
    
    24,615,240
    
    
    
    37,133,503
    
    
    
    48,340,743Effect of changes in exchange rate
    
    
    4,926,045
    
    
    
    (295,348
    )
    
    
    1,875,852Net increase (decrease) in cash and cash equivalents
    
    
    32,108,627
    
    
    
    (94,414,199
    )
    
    
    (1,622,751
    )Cash and cash equivalents, beginning of year
    
    
    131,139,659
    
    
    
    163,248,286
    
    
    
    68,834,087Cash and cash equivalents, end of year
    
    
    163,248,286
    
    
    
    68,834,087
    
    
    
    67,211,336
 Operating Activities
  Investing Activities
       Acquired businesses
    
    Methodology for calculation of Earn-out Consideration as set out in the acquisition agreementsPeak
    
    Multiple of 2.23, 1.9 and 1.0 on the first RMB 40 million of, further RMB 75 million of and remaining earnings
of
Peak, respectively, for year ended December 31, 2008.Multiple of 2.23, 1.9 and 1.0 on the first RMB 46 million of, further RMB 112.5 million
of and remaining earnings of
Peak, respectively, for year ended December 31, 2009.Multiple of 2.23, 1.9 and 1.0 on the first RMB 52.9 million of, further RMB
135 million of and remaining earnings of
Peak, respectively, for year ended December 31, 2010.The total contingent consideration for Peak is capped at RMB350.0 million.Aim
    
    Multiple of 2.3, 1.9 and 1.0 on the first RMB 5 million of, further RMB 46.9 million of and
remaining earnings of
Aim, respectively, for year ended December 31, 2008.Multiple of 2.3, 1.9 and 1.0 on the first RMB 7 million of, further RMB 53.6 million of and remaining earnings
of
Aim, respectively, for year ended December 31, 2009.Multiple of 2.3, 1.9 and 1.0 on the first RMB 10 million of, further RMB 60.3 million of and remaining earnings
of
Aim, respectively, for year ended December 31, 2010.The total contingent consideration for Aim is capped at RMB171.6 million.Golden
    
    Multiple of 2.1, 1.9 and 1.0 on the first RMB 12 million of, further RMB 30 million of and remaining earnings of
Golden, respectively, for year ended December 31, 2008.Multiple of 2.1, 1.9 and 1.0 on the first RMB 15 million of, further RMB 37.5 million of and remaining earnings
of
Golden, respectively, for year ended December 31, 2009.Multiple of 2.1, 1.9 and 1.0 on the first RMB 20 million of, further RMB 45 million of and remaining earnings of
Golden, respectively, for year ended December 31, 2010.The total contingent consideration for Golden is capped at RMB118.5 million.Goldwhite
    
    Multiple of 2.29, 1.9 and 1.0 on the first RMB 20 million of, further RMB 30 million of and remaining earnings
of
Goldwhite, respectively, for year ended December 31, 2008.Multiple of 2.29, 1.9 and 1.0 on the first RMB 23 million of, further RMB 37.5 million of and
remaining earnings of
Goldwhite, respectively, for year ended December 31, 2009.Multiple of 2.29, 1.9 and 1.0 on the first RMB 26.45 million of, further RMB 45 million of and
remaining earnings of
Goldwhite, respectively, for year ended December 31, 2010.The total contingent consideration for Goldwhite is capped at RMB 151.0 million.Ahead
    
    Multiple of 2.09, 1.9 and 1.0 on the first RMB 13 million of, further RMB 42.25 million of and
remaining earnings of
Ahead, respectively, for year ended December 31, 2008.Multiple of 2.09, 1.9 and 1.0 on the first RMB 32.5 million of, further RMB 78 million of and
remaining earnings of
Ahead, respectively, for year ended December 31, 2009.Multiple of 2.09, 1.9 and 1.0 on the first RMB 39 million of, further RMB 87.75 million of and
remaining earnings of
Ahead, respectively, for year ended December 31, 2010.The total contingent consideration for Ahead is capped at RMB184.0 million.Century
    
    Multiple of 2.2, 1.9 and 1.0 on the first RMB 8 million of, further RMB 12 million of and remaining earnings of
Century, respectively, for year ended December 31, 2008, 2009 and 2010.Multiple of 2.2, 1.9 and 1.0 on the first RMB 12 million of, further RMB 16 million of and remaining earnings of
Century, respectively, for year ended December 31, 2009.Multiple of 2.2, 1.9 and 1.0 on the first RMB 15 million of, further RMB 20 million of and remaining earnings of
Century, respectively, for year ended December 31, 2010.The total contingent consideration for Century is capped at RMB 63.9 million.
  Peak
    
    Aim
    
    Golden
    
    Goldwhite
    
    Ahead
    
    Century
    
    TotalTotal Earn-out Consideration: (US$) 2008
    
    
    22,495,063
    
    
    
    12,682,567
    
    
    
    8,976,319
    
    
    
    9,365,189
    
    
    
    12,191,410
    
    
    
    3,727,453
    
    
    
    69,438,001 2009
    
    
    25,823,672
    
    
    
    11,835,676
    
    
    
    7,732,219
    
    
    
    11,122,901
    
    
    
    13,623,225
    
    
    
    5,096,020
    
    
    
    75,233,713 2010
    
    
    2,309,706
    
    
    
    983,706
    
    
    
    495,138
    
    
    
    1,337,715
    
    
    
    1,892,764
    
    
    
    463,174
    
    
    
    7,482,203Unrecognized consideration payable
at December 31, 2010
    
    
    
    
    
    
    549,031
    
    
    
    
    
    
    
    
    
    
    
    2,070,378
    
    
    
    
    
    
    
    2,619,409
  Peak
    
    Aim
    
    Golden
    
    Goldwhite
    
    Ahead
    
    Century
    
    TotalEarn-out Consideration payable at December 31, 2008
    
    $
    14,077,134
    
    
    $
    3,486,233
    
    
    $
    4,037,393
    
    
    $
    4,808,952
    
    
    $
    4,933,377
    
    
    $
    2,167,694
    
    
    $
    33,510,783Additional Earn-out Consideration for 2008
    
    
    8,417,929
    
    
    
    9,196,334
    
    
    
    4,938,926
    
    
    
    4,556,237
    
    
    
    7,258,033
    
    
    
    1,559,759
    
    
    
    35,927,218Earn-out Consideration for 2009
    
    
    25,823,672
    
    
    
    4,881,252
    
    
    
    5,154,755
    
    
    
    4,792,551
    
    
    
    6,917,422
    
    
    
    4,445,735
    
    
    
    52,015,387Less: Cash settlements in 2009
    
    
    (20,280,617
    )
    
    
    (12,268,699
    )
    
    
    (8,495,113
    )
    
    
    (8,065,394
    )
    
    
    (11,840,634
    )
    
    
    (3,298,945
    )
    
    
    (64,249,402
    )At December 31, 2009
    
    $
    28,038,118
    
    
    $
    5,295,120
    
    
    $
    5,635,961
    
    
    $
    6,092,346
    
    
    $
    7,268,198
    
    
    $
    4,874,243
    
    
    $
    57,203,986Additional Earn-out Consideration for 2009
    
    
    
    
    
    
    6,405,393
    
    
    
    2,577,464
    
    
    
    6,330,350
    
    
    
    5,890,039
    
    
    
    650,285
    
    
    
    21,853,531Earn-out Consideration for 2010
    
    
    2,309,706
    
    
    
    983,706
    
    
    
    495,138
    
    
    
    1,337,715
    
    
    
    638,150
    
    
    
    463,174
    
    
    
    6,227,589Less: Cash settlements in 2010
    
    
    (23,776,583
    )
    
    
    (10,921,164
    )
    
    
    (7,281,461
    )
    
    
    (9,904,807
    )
    
    
    (11,930,914
    )
    
    
    (4,694,249
    )
    
    
    (68,509,178
    )Offset by prepayment
    
    
    (6,571,241
    )
    
    
    (1,225,057
    )
    
    
    (1,427,102
    )
    
    
    (3,855,604
    )
    
    
    
    
    
    
    (1,271,392
    )
    
    
    (14,350,396
    )At December 31, 2010
    
    $
    
    
    
    $
    537,998
    
    
    $
    
    
    
    $
    
    
    
    $
    1,865,473
    
    
    $
    22,061
    
    
    $
    2,425,532Recorded in the balance sheetAt December 31, 2010- Current
    
    $
    
    
    
    $
    537,998
    
    
    $
    
    
    
    $
    
    
    
    $
    1,865,473
    
    
    $
    22,061
    
    
    $
    2,425,532- Non-current
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    69




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##### Table of Contents



Financing Activities
  Capital Expenditures
   Recently Issued Accounting Pronouncements
 Compensation-Stock Compensation (Topic 718)  Effect of Denominating the Exercise Price of a
Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity
Security Trades  a consensus of the FASB Emerging Issues Task Force
 Revenue Recognition  Milestone
Method
 Disclosure of Supplementary Pro Forma
Information for Business Combinations
 70




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##### Table of Contents



When to perform Step 2 of the Goodwill
Impairment test for Reporting Units with Zero or Negative Carrying Amounts
 C.
    
    Research and Development
  D.
    
    Trend Information
  E.
    
    Off-Balance Sheet Arrangements
  F.
    
    Tabular Disclosure of Contractual Obligations
  Less than
    
    
    1-3
    
    
    3-5
    
    
    More thanTotal
    
    
    1 year
    
    
    years
    
    
    years
    
    
    5 years(US$)Long-term purchase agreement
    
    
    323,935,000
    
    
    
    87,839,000
    
    
    
    159,975,000
    
    
    
    64,360,000
    
    
    
    11,761,000Operating lease obligations
    
    
    2,067,352
    
    
    
    1,040,175
    
    
    
    640,477
    
    
    
    276,519
    
    
    
    110,181Consideration for an acquisition
    
    
    60,000,000
    
    
    
    30,000,000
    
    
    
    30,000,000
    
    
    
    
    
    
    
    Total contractual obligations
    
    
    386,002,352
    
    
    
    118,879,175
    
    
    
    190,615,477
    
    
    
    64,636,519
    
    
    
    11,871,181
   71




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##### Table of Contents



G.
    
    Safe Harbor
  
    
    our growth strategies, including our plan or intention to expand the coverage and
penetration of our national network, to maximize our average revenues per hour, to
continue to pursue exclusive arrangements with additional mobile digital television
companies, to continue to explore new digital media technologies and techniques, to
expand our network to other advertising media platforms and to pursue strategic
relationships and acquisitions;
    
    our future business development, results of operations and financial condition;
    
    expected changes in our revenues and certain cost or expense items;
    
    our ability to manage the expansion of our operations;
    
    changes in general economic and business conditions in China; and
    
    trends and competition in the mobile digital television advertising industry.
  
 Item 6.
    
    Directors, Senior Management and Employees
 A.
    
    Directors and Senior Management
 Directors and Executive Officers
  Name
    
    Age
    
    Position/ TitleLimin Li
    
    
    50
    
    
    Chairman of the Board of Directors, Chief Executive OfficerHaijun Liu
    
    
    48
    
    
    Chief Development OfficerYan Wang
    
    
    33
    
    
    Vice President of Finance
 72




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##### Table of Contents



Name
    
    Age
    
    Position/ TitleYanqing Liang
    
    
    39
    
    
    DirectorWilliam Decker
    
    
    65
    
    
    Independent DirectorXisong Tan
    
    
    63
    
    
    Independent DirectorYunli Lou
    
    
    43
    
    
    Independent Director
 Limin Li
 Haijun Liu
 Yan Wang
 Yanqing Liang
 William Decker
 73




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##### Table of Contents



Xisong Tan
 Yunli Lou
  B.
    
    Compensation of Directors and Executive Officers
 Compensation of Directors and Executive Officers
  2006 Share Incentive Plan
  Plan Administration.
 Award Agreements.
 Transfer Restrictions.
 74




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##### Table of Contents



Option Exercise.
 Acceleration upon a Change of Control.
 Termination and Amendment.
  OrdinaryShares
    
    ExerciseUnderlying
    
    PriceOutstanding
    
    UnderlyingOptions or
    
    Outstandingrestricted
    
    OptionsName
    
    Shares
    
    (US$/Share)
    
    Grant Date
    
    Expiration DateLimin Li
    
    
    350,000
    
    
    
    6.545
    
    
    August 30, 2007
    
    August 30, 2017Haijun
Liu(1)
    
    
    *
    
    
    
    1.00/
    
    
    December 8, 2006/
    
    December 8, 2016/8.53
    
    
    October 8, 2009
    
    October 8, 2019Yan Wang(2)
    
    
    *
    
    
    
    5.48/
    
    
    June 17, 2009
    
    June 17, 20198.53
    
    
    October 8, 2009
    
    October 8, 2019William Decker(3)
    
    
    *
    
    
    
    6.545
    
    
    October 31, 2007
    
    October 31, 20174.68
    
    
    April 2, 2010
    
    April 2, 2020Xisong Tan(4)
    
    
    *
    
    
    
    1.00
    
    
    December 8, 2007
    
    December 8, 20164.68
    
    
    April 2, 2010
    
    April 2, 2020Yunli Lou(5)
    
    
    *
    
    
    
    5.82/
    
    
    December 11, 2008/
    
    December 11, 2018/8.53
    
    
    October 8, 2009
    
    October 8, 2019Other individuals as group
    
    
    1,523,858
    
    
    
    5.23
    
    
    (6)
    
    (7)
 
 *
    
    Upon exercise of all options granted, would beneficially own less than 1% of our
outstanding common shares, assuming the conversion of all of our outstanding preferred
shares.(1)
    
    A portion of the options was granted on December 8, 2006 with an exercise price of US$1.00 and another portion was granted on
October 8, 2009 with an exercise price of US$8.53.(2)
    
    A portion of the options was granted on June 17, 2009 with an exercise price of $5.48 and another portion was granted on October 8,
2009 with an exercise price of US$8.53.(3)
    
    A portion of the options was granted on October 31, 2007 with an exercise price of $6.545 and another portion was granted on April 2,
2010 with an exercise price of US$4.68.(4)
    
    A portion of the options was granted on December 8, 2006 with an exercise price of $6.545 and another portion was granted on April 2,
2010 with an exercise price of US$4.68.(5)
    
    A portion of the options was granted on December 11, 2008 with an exercise price of US$5.82 and another portion was granted on
October 8, 2009 with an exercise price of US$8.53.(6)
    
    Options were granted to other individuals on various dates.(7)
    
    Other individuals options expire on various dates. 75




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C.
    
    Board Practices
 Committees of the Board of Directors
 Audit Committee
  
    
    selecting our independent auditors and pre-approving all auditing and
non-auditing services permitted to be performed by our independent auditors;
    
    reviewing with our independent auditors any audit problems or difficulties and managements
response;
    
    reviewing and approving all proposed related-party transactions, as defined in Item 404 of
Regulation S-K under the Securities Act;
    
    discussing the annual audited financial statements with management and our independent
auditors;
    
    reviewing major issues as to the adequacy of our internal controls and any
special audit steps adopted in light of material control deficiencies;
    
    annually reviewing and reassessing the adequacy of our audit committee charter;
    
    such other matters that are specifically delegated to our audit committee by our board of
directors from time to time;
    
    meeting separately and periodically with management and our internal and independent auditors;
and
    
    reporting regularly to the full board of directors.
 Compensation Committee
  
    
    reviewing and making recommendations to the board with respect to the total
compensation package for our three most senior executives;
    
    approving and overseeing the total compensation package for our executives other than the three
most senior executives;
 76




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##### Table of Contents




    
    reviewing and making recommendations to the board with respect to the compensation of our
directors; and
    
    reviewing periodically and approving any long-term incentive compensation or equity
plans, programs or similar arrangements, annual bonuses, employee pension and welfare
benefit plans.
 Corporate Governance and Nominating Committee
  
    
    selecting and recommending to the board nominees for election or re-election to the board, or
for appointment to fill any vacancy;
    
    reviewing annually with the board the current composition of the board with
regards to characteristics such as independence, age, skills, experience and
availability of service to us;
    
    selecting and recommending to the board the names of directors to serve as members
of the audit committee and the compensation committee, as well as the corporate
governance and nominating committee itself;
    
    advising the board periodically with regards to significant developments in the law
and practice of corporate governance as well as our compliance with applicable laws and
regulations, and making recommendations to the board on all matters of corporate
governance and on any remedial action to be taken; and
    
    monitoring compliance with our code of business conduct and ethics, including
reviewing the adequacy and effectiveness of our procedures to ensure proper
compliance.
 Duties of Directors
   
    
    convening shareholders annual general meetings and reporting its work to shareholders at such
meetings;
    
    issuing authorized but unissued shares and redeeming or purchasing outstanding shares of our
company (subject to the Companies Law);
    
    declaring dividends and other distributions;
    
    appointing officers and determining the term of office of officers;
 77




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##### Table of Contents




    
    exercising the borrowing powers of our company and mortgaging the property of our company; and
    
    approving the transfer of shares of our company, including the registration of such shares in
our share register.
 Terms of Directors and Executive Officers
  Employment Agreements
   D.
    
    Employees
    E.
    
    Share Ownership
  
    
    each of our directors and executive officers; and
 78




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##### Table of Contents




    
    each person known to us to own beneficially more than 5.0% of our common shares.
 Shares Beneficially Owned(1)(2)Number
    
    
    %Directors and Executive Officers:Limin Li(3)
    
    
    17,529,849
    
    
    
    17.1Yanqing Liang(4)
    
    
    4,981,714
    
    
    
    4.9Yunli Lou(5)
    
    
    8,418,513
    
    
    
    8.2Yan Wang
    
    
    *
    
    
    
    *Haijun Liu
    
    
    *
    
    
    
    *William Decker
    
    
    *
    
    
    
    *Xisong Tan
    
    
    *
    
    
    
    *All directors and executive officers as a group(6)
    
    
    31,171,738
    
    
    
    30.5Principal Shareholders:Front Lead Investments Limited(7)
    
    
    17,529,849
    
    
    
    17.1Milestone I, II and III(8)
    
    
    6,684,108
    
    
    
    6.5Massive Sheen Investments Limited(9)
    
    
    4,981,714
    
    
    
    4.9Columbia Wanger Asset Management, L.P.(10)
    
    
    9,072,800
    
    
    
    8.9FMR LLC(11)
    
    
    5,346,842
    
    
    
    5.2Focus Media Holding Limited(12)
    
    
    15,331,305
    
    
    
    15.1
 
 *
    
    Upon exercise of all options granted, would beneficially own less than 1.0%
of our outstanding common shares.(1)
    
    Beneficial ownership is determined in accordance with Rule 13d-3 of the General Rules and
Regulations under the Securities Exchange
Act of 1934, as amended, and includes voting or investment power with respect to the
securities.(2)
    
    The number of common shares outstanding in calculating the percentages for each listed
person includes the common shares underlying options held by such person that are
exercisable within 60 days of January 13, 2011. Percentage of beneficial ownership of
each listed person is based on 102,250,087 common shares outstanding
as of January 13,
2011, as well as the common shares underlying share options exercisable by such person
within 60 days of January 13, 2011.(3)
    
    Includes 17,187,142 common shares owned by Front Lead Investments Limited, a British
Virgin Islands company, and 342,707 common shares issuable upon the exercise of options
granted to Front Lead Investments Limited that are exercisable within 60 days of the date
of December 31, 2009. Malte International Holdings Limited is the sole shareholder and
sole director of Front Lead Investments Limited. The Li Liu Family Trust, an irrevocable
trust, is the sole shareholder of Malte International Holders Limited. HSBC International
Trustee Limited is the trustee of the Li Liu Family Trust with Limin Li as the settlor.
Certain family members of Limin Li are beneficiaries of the Li Liu Family Trust. The
business address of HSBC International Trustee Limited is Strathvale House, 2nd Floor,
North Church Street, George Town, Grand Cayman, Cayman Islands and the business address of
Mr. Li is c/o VisionChina Media Inc., 1/F Block No. 7, Champs Elysees, Nongyuan Road,
Futian District, Shenzhen 518040, China.(4)
    
    Includes 4,671,155 common shares owned by Massive Sheen Investments Limited, a British
Virgin Islands company. Ms. Liang is the sole director and sole owner of Massive Sheen
Investments Limited. The business address of Ms. Liang is c/o VisionChina Media Inc.,
1/F Block No. 7, Champs Elysees, Nongyuan Road, Futian District, Shenzhen 518040, China.(5)
    
    Includes (i) 8,102,176 common shares held by Milestone I, Milestone II, Milestone III and
Milestone IV, and (ii) 277,587 common shares (in ADS form) held by Linden Street Capital
Limited, a limited liability company organized under the laws of the British Virgin
Islands. Yunli Lou, a managing director of Milestone Capital Partners Limited, disclaims
beneficial ownership of shares held by Milestone I, Milestone II, Milestone III and
Milestone IV except to the extent of her pecuniary interest in these shares and (iii)
38,750 common shares issuable upon the exercise of options granted to Yunli Lou. Yunli Lou
is the sole shareholder of Linden Street Capital Limited and her business address is Room
1708 Dominion Centre, 43-59 Queens Road East, Wanchai, Hong Kong. 79




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##### Table of Contents



(6)
    
    Include common shares held by all of our directors and executive officers as a group
and common share issuable upon the exercise of all of the options that are exercisable
within 60 days of January 17, 2011 held by all of our directors and executive officers.(7)
    
    Malte International Holdings Limited is the sole shareholder and sole director of Front
Lead Investments Limited. The Li Liu Family Trust, an irrevocable trust, is the sole
shareholder of Malte International Holders Limited. HSBC International Trustee Limited is
the trustee of the Li Liu Family Trust with Limin Li as the settlor. Certain family
members of Limin Li are beneficiaries of the Li Liu Family Trust. The business address of
HSBC International Trustee Limited is Strathvale House, 2nd Floor, North Church Street,
George Town, Grand Cayman, Cayman Islands and the business address of Mr. Li is c/o
VisionChina Media Inc., 1/F Block No. 7, Champs Elysees, Nongyuan Road, Futian District,
Shenzhen 518040, China.(8)
    
    Includes 5,684,108 common shares held by Milestone Mobile TV Media Holdings I Limited,
Milestone Mobile TV Media Holdings II Limited, and Milestone Mobile TV Media Holdings III
Limited, each of which is a limited liability company organized under the laws of the
British Virgin Islands. Each of Milestone I, II and III has a mailing address of P.O. Box
957, Offshore Incorporation Center, Road Town, Tortola, British Virgin Islands. Milestone
I, II and III are wholly owned by Milestone China Opportunities Fund II, L.P., an
exempted limited partnership formed under the laws of the Cayman Islands. The general
partner of the Milestone China Opportunities Fund II, L.P. is Milestone Capital Partners
Limited, a limited liability company incorporated under the laws of the Cayman Islands.
The sole director of Milestone Capital Partners Limited is Cherianne Limited, a company
organized under the laws of the British Virgin Islands. Yuen Ho Wan and James Ngai, as
all of the directors of Cherianne Limited, share the investment and voting power of
Cherianne Limited. Ms. Wans and Mr. Ngais business address is Room 1708 Dominion
Centre, 43-59 Queens Road East, Wanchai, Hong Kong.(9)
    
    Yanqing Liang is the sole director and sole owner of Massive Sheen Investments Limited. The
business address of Ms. Liang is c/o
VisionChina Media Inc., 1/F Block No. 7, Champs Elysees, Nongyuan Road, Futian District,
Shenzhen 518040, China.(10)
    
    Includes 9,072, 800 common shares represented by ADSs held by Columbia Wanger Asset
Management, L.P. and Columbia Acorn Trust according to its Schedule 13G filed with the
SEC on February 10, 2010. Columbia Acorn Trust is a Massachusetts business trust that is
advised by Columbia Wanger Asset Management, L.P. Columbia Wanger Asset Management, L.P.
is a Delaware limited partnership, with the principal business address at 227 West Monroe
Street, Suite 3000, Chicago, IL 60606.(11)
    
    Includes 5,346,842 common shares represented by ADSs owned by FMR LLC according to its
Schedule 13G filed with the SEC on
February 16, 2010. FMR LLC is a Delaware company with the business address at 82 Devonshire
Street, Boston, Massachusetts 02109.(12)
    
    Includes 15,331,305 common shares held by Focus Media Holding Limited, a limited
liability company incorporated in the Cayman Islands whose American Depositary Receipts
are traded on the Nasdaq Global Market under the symbol FMCN. The mailing address of
Focus Media Holding Limited is Unit No. 1, 20th Floor, The Centrium, 60 Wyndham Street,
Central, Hong Kong.  
 Item 7.
    
    Major Shareholders and Related Party Transactions
 A.
    
    Major Shareholders
  80




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##### Table of Contents



B.
    
    Related Party Transactions
  Transactions with Our Direct Investment Entities
 Agreements to Purchase Advertising Time from and Sell Advertising Equipment to Our Direct
Investment Entities
   Exclusive Agency Agreements with Our Direct Investment Entities
     81




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Transactions with Affiliated Companies of Limin Li
 Lease and loan with Meidi Zhiye
  82




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##### Table of Contents



Transactions with Champs Elysees
  Transaction Related to Our Corporate Structure
  Agreements that Transfer Economic Benefit to Us
 Technology and Management Service Agreement.
 Domain Name License Agreement.
 Business Cooperation Agreement.
 Agreements that Provide Us Effective Control over VisionChina Media Group, Beijing Eastlong
Advertising and Their Respective Subsidiaries
 Loan Agreement.
  83




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##### Table of Contents



Proxy Letter.
 Option Agreement.
  Equity Pledge Agreement.
  C.
    
    Interests of Experts and Counsel
  
 Item8.
    
    Financial Information
 A.
    
    Consolidated Statements and Other Financial Information
  Legal and Administrative Proceedings
       Dividend Policy
  84




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##### Table of Contents



B.

    Significant Changes
    
 Item9.
    
    The Offer and Listing
 A.
    
    Offering and Listing Details.
  Market Price Per ADSHigh
    
    LowYearly:2007 (since December 6)
    
    
    9.80
    
    
    
    7.632008
    
    
    25.60
    
    
    
    4.252009
    
    
    12.27
    
    
    
    4.802010
    
    
    11.85
    
    
    
    2.51Quarterly:2009First quarter
    
    
    7.80
    
    
    
    5.06Second quarter
    
    
    8.18
    
    
    
    4.80Third quarter
    
    
    8.15
    
    
    
    5.21Fourth quarter
    
    
    12.27
    
    
    
    7.042010First quarter
    
    
    11.85
    
    
    
    4.61Second quarter
    
    
    5.04
    
    
    
    2.51Third quarter
    
    
    4.70
    
    
    
    2.90Fourth quarter
    
    
    5.10
    
    
    
    3.41Monthly:2010September
    
    
    4.70
    
    
    
    3.55October
    
    
    5.10
    
    
    
    4.11November
    
    
    4.24
    
    
    
    3.41December
    
    
    4.72
    
    
    
    3.572011January
    
    
    4.83
    
    
    
    4.30February
    
    
    4.99
    
    
    
    4.28March
    
    
    4.38
    
    
    
    3.75April
    
    
    4.49
    
    
    
    3.87May
    
    
    4.68
    
    
    
    3.78June
(through June 29)
    
    
    3.85
    
    
    
    2.22
 85




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##### Table of Contents



B.
    
    Plan of Distribution
  C.
    
    Markets
  D.
    
    Selling Shareholders
  E.
    
    Dilution
  F.
    
    Expenses of the Issue
  
 Item 10.
    
    Additional Information
 A.
    
    Share Capital
  B.
    
    Memorandum and Articles of Association
  C.
    
    Material Contracts
  D.
    
    Exchange Controls
 Foreign Currency Exchange
  
    
    Foreign Currency Administration Rules (1996), as amended, or the Exchange Rules; and
 86




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##### Table of Contents




    
    Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996), or the
Administration Rules.
   E.
    
    Taxation
 Cayman Islands Taxation
  Material United States Federal Income Tax Consequences
  
    
    an individual citizen or resident of the United States;
    
    a corporation (or other entity treated as a corporation for United States federal
income tax purposes) created or organized in or under the laws of the United States,
any state thereof or the District of Columbia;
    
    an estate the income of which is subject to United States federal income taxation regardless of
its source; or
    
    a trust if it (1) is subject to the primary supervision of a court within the United
States and one or more United States persons have the authority to control all
substantial decisions of the trust or (2) has a valid election in effect under
applicable United States Treasury regulations to be treated as a United States person.
  
    
    a dealer in securities or currencies;
    
    a financial institution;
 87




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##### Table of Contents




    
    a regulated investment company;
    
    a real estate investment trust;
    
    an insurance company;
    
    a tax-exempt organization;
    
    a person holding our common shares or ADSs as part of a hedging, integrated or
conversion transaction, a constructive sale or a straddle;
    
    a trader in securities that has elected the mark-to-market method of accounting for your
securities;
    
    a person liable for alternative minimum tax;
    
    a person who owns or is deemed to own 10% or more of our voting stock;
    
    a partnership or other pass-through entity for United States federal income tax purposes; or
    
    a person whose functional currency is not the United States dollar.
   If you are considering the
purchase, ownership or disposition of our common shares or ADSs, you should consult your own
tax advisors concerning the United
States federal income tax consequences to you in light of your particular situation as well as
any consequences arising under the laws of any other taxing jurisdiction.
  ADSs
  88




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##### Table of Contents



Taxation of Dividends
        89




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##### Table of Contents



Passive Foreign Investment Company
  
    
    at least 75% of our gross income is passive income, or
    
    at least 50% of the value (determined based on a quarterly average) of our assets
is attributable to assets that produce or are held for the production of passive
income.
    
    
    the excess distribution or gain will be allocated ratably over your holding period for the ADSs
or common shares,
    
    the amount allocated to the current taxable year, and any taxable year prior to the
first taxable year in which we were a PFIC, will be treated as ordinary income, and
    
    the amount allocated to each other year will be subject to tax at the highest tax
rate in effect for that year and the interest charge generally applicable to
underpayments of tax will be imposed on the resulting tax attributable to each such
year.
  90




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##### Table of Contents



Taxation of Capital Gains
  Information Reporting and Backup Withholding
  91




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##### Table of Contents



F.
    
    Dividends and Paying Agents
  G.
    
    Statement by Experts
  H.
    
    Documents on Display
       I.
    
    Subsidiary Information
  
 Item 11.
    
    Quantitative and Qualitative Disclosures About Market Risk
 Foreign Exchange Risk
  92




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##### Table of Contents



Interest Rate Risk
     
 Item 12.
    
    Description of Securities Other Than Equity Securities
 A.
    
    Debt Securities
  B.
    
    Warrants and Rights
  C.
    
    Other Securities
  93




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##### Table of Contents



D.
    
    American Depositary Shares
 Depositary Fees
  Service
    
    FeesIssuance of ADSs
    
    Up to US$0.05 per ADS issuedCancellation of ADSs
    
    Up to US$0.05 per ADS  cancelledDistribution of cash dividends or other cash distributions
    
    Up to US$0.02 per ADS heldDistribution of ADSs pursuant to stock dividends, free stock distributions or exercises
of rights
    
    Up to US$0.05 per ADS heldDistribution of securities other than ADSs or rights to purchase additional ADSs
    
    Up to US$0.05 per ADS held
 Depositary Charges
  
    
    taxes and other governmental charges;
    
    such registration fees as may from time to time be in effect for the registration of
common shares or other deposited securities on the share register and applicable to
transfers of common shares or other deposited securities to or from the name of the
custodian, the depositary or any nominees upon the making of deposits and withdrawals,
respectively;
    
    such cable, telex and facsimile transmission and delivery expenses as are
expressly provided in the deposit agreement to be at the expense of ADS holders and
beneficial owners of ADSs;
    
    the expenses and charges incurred by the depositary in the conversion of foreign currency; and
    
    the fees and expenses incurred by the depositary, the custodian or any nominee
in connection with the servicing or delivery of deposited securities.
     94




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##### Table of Contents



Payments by Depositary
  US$Item
    
    (in thousands)Reimbursement of investor relations efforts
    
    
    272Reimbursement of legal fees
    
    
    1Reimbursement of Nasdaq listing fees
    
    
    5Reimbursement of proxy process expenses
    
    
    19Reimbursement of SEC filing fees
    
    
    42Reimbursement of Sarbanes-Oxley and accounting-related expenses in connection with ongoing SEC
compliance and listing requirements
    
    
    Reimbursement of other ADR program-related expenses
    
    
    4Total
    
    
    343
 
 Part II
 
 Item13.
    
    Defaults, Dividend Arrearages and Delinquencies
  
 Item14.
    
    Material Modifications to the Rights of Security Holders and Use of Proceeds
 Material Modifications to the Rights of Securities Holders
  Use of Proceeds
    95




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##### Table of Contents



Item 15.
    
    Controls and Procedures
 Disclosure Controls and Procedures
   Managements Annual Report on Internal Control over Financial Reporting.
      96




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##### Table of Contents



Attestation Report of the Independent Registered Public Accounting Firm
  Internal Control  Integrated Framework
    Internal Control  Integrated Framework
   Deloitte Touche Tohmatsu
 Changes in Internal Control Over Financial Reporting
  
 Item 16A.
    
    Audit Committee Financial Expert
  97




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##### Table of Contents



Item 16B.
    
    Code of Ethics
  
 Item 16C.
    
    Principal Accountant Fees and Services
  For the Year EndedDecember 31,2009
    
    
    2010(US$)Audit Fees(1)
    
    
    850,000
    
    
    
    1,050,000Audit-Related Fees(2)
    
    
    
    
    
    
    Tax Fees(3)
    
    
    
    
    
    
    Other Fees(4)
    
    
    
    
    
    
    450,000Total
    
    
    850,000
    
    
    
    1,500,000
 
 (1)
    
    Audit fees include the aggregate fees billed in each of the fiscal period listed for
professional services rendered by our principal auditors for the audit of our annual
financial statements and internal control over financial reporting.(2)
    
    Audit-related fees include the aggregate fees billed in each of fiscal period listed
for assurance and related services by our principal auditors that are reasonably related
to the performance of audit or review of our annual financial statements not reported
under our audit fees.(3)
    
    Tax fees include fees billed for tax consultations.(4)
    
    Other fees include the fees billed by our principal auditors in connection with their
audit of the financial statements of Digital Media Group for fiscal years ended December
31, 2008 and 2009, which could be used in the filing of registration
statement on Form F-3, if any, with the SEC. de minimis
 
 Item 16D.
    
    Exemptions From the Listing Standards For Audit Committees
  
 Item 16E.
    
    Purchases of Equity Securities by the Issuer and Affiliated Purchasers.
  98




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##### Table of Contents



Approximate Valueof ADSs that MayYet beAverage Price
    
    Total Number of
    
    PurchasedPaid
    
    ADSs Purchased
    
    Under theTotal Number of
    
    per ADS
    
    Under the
    
    Program(1)Period
    
    ADSs Purchased
    
    (US$)
    
    Program
    
    (US$ in thousands)2008December
    
    
    281,400
    
    
    
    5.1360
    
    
    
    281,400
    
    
    
    48,5572009January
    
    
    23,775
    
    
    
    5.4962
    
    
    
    23,775
    
    
    
    48,426February
    
    
    2,550
    
    
    
    5.5000
    
    
    
    2,550
    
    
    
    48,412March
    
    
    346,087
    
    
    
    5.4155
    
    
    
    346,087
    
    
    
    46,543April
    
    
    286,568
    
    
    
    5.3827
    
    
    
    286,568
    
    
    
    45,000Total
    
    
    940,380
    
    
    
    5.3241
    
    
    
    940,380
    
    
    
    45,000
 
 (1)
    
    According to the share repurchase program, we may repurchase up to US$50 million worth of
our issued and outstanding ADSs from the open market from time to time and before December
31, 2009. 
 Item 16F.
    
    Change in Registrants Certifying Accountant
  
 Item 16G.
    
    Corporate Governance
  
 Part III
 
 Item17.
    
    Financial Statements
  
 Item18.
    
    Financial Statements
  
    
    Report of Independent Registered Public Accounting Firm
    
    Consolidated Balance Sheets as of December 31, 2009 and 2010
    
    Consolidated Statements of Operations for the years ended December 31, 2008, 2009 and 2010
    
    Consolidated Statements of Changes of Equity and Comprehensive Income (Loss) for the years
ended December 31, 2008, 2009 and 2010
    
    Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2009 and 2010
    
    Notes to the Consolidated Financial Statements
    
    Condensed Financial Information of Registrant  Schedule I
 99




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##### Table of Contents



Item 19.
    
    Exhibits
 ExhibitNumber
    
    Description of Document1.1
    
    Memorandum and Articles of Association of VisionChina Media Inc.
(incorporated by reference to Exhibit 3.1 from our F-1 registration
statement (File No. 333-147275), as amended, initially filed with the
Commission on November 9, 2007)1.2
    
    Form of Second Amended and Restated Memorandum and Articles of Association
of VisionChina Media Inc. (incorporated by reference to Exhibit 3.2 from
our F-1 registration statement (File No. 333-147275), as amended,
initially filed with the Commission on November 9, 2007)2.1
    
    Specimen Certificate for Common Shares of VisionChina Media Inc.
(incorporated by reference to Exhibit 4.2 from our F-1 registration
statement (File No. 333-147275), as amended, initially filed with the
Commission on November 9, 2007)2.2
    
    Form of American Depositary Receipt of VisionChina Media Inc.
(incorporated by reference to Exhibit 4.1 from our F-1 registration
statement (File No. 333-147275), as amended, initially filed with the
Commission on November 9, 2007)2.3
    
    Form of Deposit Agreement among VisionChina Media Inc., the depositary and
owners and beneficial owners of the American Depositary Receipts
(incorporated by reference to Exhibit 4.3 from our F-1 registration
statement (File No. 333-147275), as amended, initially filed with the
Commission on November 9, 2007)4.1
    
    Share Purchase Agreement, dated April 12, 2006, in respect of the sale of
Series A preferred shares of the Registrant (incorporated by reference to
Exhibit 4.4 from our F-1 registration statement (File No. 333-147275), as
amended, initially filed with the Commission on November 9, 2007)4.2
    
    Share Purchase Agreement, dated March 9, 2007, in respect of the sale of
Series B preferred shares of the Registrant (incorporated by reference to
Exhibit 4.5 from our F-1 registration statement (File No. 333-147275), as
amended, initially filed with the Commission on November 9, 2007)4.3
    
    Shareholders Agreement, dated April 12, 2006, among the Registrant and
certain investors in Registrants Series A preferred shares (incorporated
by reference to Exhibit 4.6 from our F-1 registration statement (File No.
333-147275), as amended, initially filed with the Commission on November
9, 2007)4.4
    
    Amended and Restated Shareholders Agreement, dated March 9, 2007, among
the Registrant and certain investors in Registrants Series A preferred
shares and certain investors in Registrants Series B preferred shares
(incorporated by reference to Exhibit 4.7 from our F-1 registration
statement (File No. 333-147275), as amended, initially filed with the
Commission on November 9, 2007)4.5
    
    Amendment No. 1 to the Amended and Restated Shareholders Agreement, dated
November 8, 2007, among the same parties (incorporated by reference to
Exhibit 4.8 from our F-1 registration statement (File No. 333-147275), as
amended, initially filed with the Commission on November 9, 2007)4.6
    
    Registrants 2006 Share
Incentive Plan (incorporated by reference to Exhibit 10.1 from our
F-1 registration statement (File No. 333-147275), as amended, initially filed with the
Commission on November 9, 2007)4.7
    
    Form of Indemnification Agreement with the Registrants directors
(incorporated by reference to Exhibit 10.2 from our F-1 registration
statement (File No. 333-147275), as amended, initially filed with the
Commission on November 9, 2007)
 100




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##### Table of Contents



ExhibitNumber
    
    Description of Document4.8
    
    Translation of Loan Agreement dated February 15, 2007 among China Digital
Technology Consulting (Shenzhen) Co., Ltd. and Limin Li and Yanqing
Liang (incorporated by reference to Exhibit 10.3 from our F-1 registration
statement (File No. 333-147275), as amended, initially filed with the
Commission on November 9, 2007)4.9
    
    Translation of Loan Agreement dated March 31, 2006 among China Digital
Technology Consulting (Shenzhen) Co., Ltd. and Limin Li and Yanqing
Liang (incorporated by reference to Exhibit 10.4 from our F-1 registration
statement (File No. 333-147275), as amended, initially filed with the
Commission on November 9, 2007)4.10
    
    Translation of Technology Service and Management Agreement dated February
15, 2007 between China Digital Technology Consulting (Shenzhen) Co., Ltd.
and China Digital Mobile Television Co., Ltd. (incorporated by reference
to Exhibit 10.5 from our F-1 registration statement (File No. 333-147275),
as amended, initially filed with the Commission on November 9, 2007)4.11
    
    Translation of Technology Service and Management Agreement dated March 31,
2006 between China Digital Technology Consulting (Shenzhen) Co., Ltd. and
China Digital Mobile Television Co., Ltd. (incorporated by reference to
Exhibit 10.6 from our F-1 registration statement (File No. 333-147275), as
amended, initially filed with the Commission on November 9, 2007)4.12
    
    Translation of Domain Name License Agreement dated February 15, 2007
between China Digital Technology Consulting (Shenzhen) Co., Ltd. and China
Digital Mobile Television Co., Ltd. (incorporated by reference to Exhibit
10.7 from our F-1 registration statement (File No. 333-147275), as
amended, initially filed with the Commission on November 9, 2007)4.13
    
    Translation of Domain Name License Agreement dated March 31, 2006 between
China Digital Technology Consulting (Shenzhen) Co., Ltd. and China Digital
Mobile Television Co., Ltd. (incorporated by reference to Exhibit 10.8
from our F-1 registration statement (File No. 333-147275), as amended,
initially filed with the Commission on November 9, 2007)4.14
    
    Translation of Option Agreement dated February 15, 2007 among China
Digital Technology Consulting (Shenzhen) Co., Ltd. and Limin Li and
Yanqing Liang. (incorporated by reference to Exhibit 10.9 from our F-1
registration statement (File No. 333-147275), as amended, initially filed
with the Commission on November 9, 2007)4.15
    
    Translation of Option Agreement dated March 31, 2006 among China Digital
Technology Consulting (Shenzhen) Co., Ltd. and Limin Li and Yanqing Liang.
(incorporated by reference to Exhibit 10.10 from our F-1 registration
statement (File No. 333-147275), as amended, initially filed with the
Commission on November 9, 2007)4.16
    
    Translation of Proxy Letter dated March 31, 2006 and Amendment to Proxy
Letter dated February 15, 2007 of Limin Li. (incorporated by reference to
Exhibit 10.11 from our F-1 registration statement (File No. 333-147275),
as amended, initially filed with the Commission on November 9, 2007)4.17
    
    Translation of Proxy Letter dated March 31, 2006 and Amendment to Proxy
Letter dated February 15, 2007 of Yanqing Liang (incorporated by reference
to Exhibit 10.12 from our F-1 registration statement (File No.
333-147275), as amended, initially filed with the Commission on November
9, 2007)
 101




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##### Table of Contents



ExhibitNumber
    
    Description of Document4.18
    
    Translation of Equity Pledge Agreement dated February 15, 2007 among China
Digital Technology Consulting (Shenzhen) Co., Ltd. and Limin Li and
Yanqing Liang (incorporated by reference to Exhibit 10.13 from our F-1
registration statement (File No. 333-147275), as amended, initially filed
with the Commission on November 9, 2007)4.19
    
    Translation of Equity Pledge Agreement dated March 31, 2006 among China
Digital Technology Consulting (Shenzhen) Co., Ltd. and Limin Li and
Yanqing Liang (incorporated by reference to Exhibit 10.14 from our F-1
registration statement (File No. 333-147275), as amended, initially filed
with the Commission on November 9, 2007)4.20
    
    Translation of Cooperation Agreement dated October 13, 2006 between China
Digital Mobile Television Co., Ltd. and Beijing Beiguang Media Mobile
Television Co., Ltd. (incorporated by reference to Exhibit 10.15 from our
F-1 registration statement (File No. 333-147275), as amended, initially
filed with the Commission on November 9, 2007)4.21
    
    Translation of Advertising Time on Bus Mobile Television Platform in
Shenzhen Exclusive Agency Agreement dated December 31, 2006 between China
Digital Mobile Television Co., Ltd. and Shenzhen Mobile Television Co.,
Ltd. (incorporated by reference to Exhibit 10.16 from our F-1 registration
statement (File No. 333-147275), as amended, initially filed with the
Commission on November 9, 2007)4.22
    
    Amended and Restated Agreement and Plan of Merger dated November 16, 2009,
among VisionChina Media Inc., Vision Best Limited, Digital Value Holdings
Limited, Digital Media Group Company Limited and the Shareholder
Representative (incorporated by reference to Exhibit 4.22 from our annual report on Form 20-F (File No. 001-
33821), as amended, initially filed with the Commission on June 23, 2010)4.23
    
    Registration Rights Agreement dated as of November 16, 2009 among
VisionChina Media Inc. and the investors signatories thereto (incorporated by reference to Exhibit 4.23 from our annual report on Form 20-F (File No. 001-
33821), as amended, initially filed with the Commission on June 23, 2010)4.24
    
    Translation of RMB Loan Agreement, dated as of December 3, 2009, between
VisionChina Media Group Inc., and Bank of China, Shenzhen Branch (incorporated by reference to Exhibit 4.24 from our annual report on Form 20-F (File No. 001-
33821), as amended, initially filed with the Commission on June 23, 2010)4.25
    
    Translation of Guarantee Contract between VisionChina Digital Company and
Bank of China Shenzhen Branch (incorporated by reference to Exhibit 4.25 from our annual report on Form 20-F (File No. 001-
33821), as amended, initially filed with the Commission on June 23, 2010)4.26
    
    Securities Purchase Agreement, dated as of December 30, 2010 by and among VisionChina
Media Inc., Focus Media Holding Limited and the other investors named therein (incorporated by reference to Exhibit 4.26 from our annual report on Form 20-F (File No. 001-
33821), as amended, filed with the Commission on June 27, 2011)4.27
    
    Shareholders Agreement, dated as of January 13, 2011 by and among Focus Media Holding
Limited, JJ Media Investment Holding Limited, Front Lead Investments Limited, Limin Li, and VisionChina Media Inc. (incorporated by reference to Exhibit 4.27 from our annual report on Form 20-F (File No. 001-
33821), as amended, filed with the Commission on June 27, 2011)4.28
    
    Registration Right Agreement, dated as of January 13, 2011 by and among VisionChina Media
Inc., Focus Media Holding Limited, JJ Media Investment Holding Limited, and Front Lead Investments
Limited (incorporated by reference to Exhibit 4.28 from our annual report on Form 20-F (File No. 001-
33821), as amended, filed with the Commission on January 21, 2011)8.1*
    
    List of Subsidiaries11.1
    
    Code of Business Conduct and Ethics (incorporated by reference to Exhibit
99.1 from our F-1 registration statement (File No. 333-147275), as
amended, initially filed with the Commission on November 29, 2007)12.1*
    
    CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 200212.2*
    
    Principal Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 200213.1*
    
    CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 200213.2*
    
    Principal Financial Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 200223.1*
    
    Consent of Independent Registered Public Accounting Firm
 
 *
    
    Filed with this annual report 102




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##### Table of Contents



SIGNATURES
  VISIONCHINA MEDIA INC.By
    /s/ Limin LiName:
    Limin LiTitle:
    Chairman and Chief Executive Officer  103




---



##### 



VISIONCHINA MEDIA INC.
 PAGEREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
    
    
    F-1CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2009 AND 2010
    
    
    F-2

F-3CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED
DECEMBER 31, 2008, 2009 AND 2010
    
    
    F-4CONSOLIDATED STATEMENTS OF CHANGES OF EQUITY AND COMPREHENSIVE
INCOME (LOSS) FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
    
    
    F-5CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
DECEMBER 31, 2008, 2009 AND 2010
    
    
    F-6NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
    
    
    F-7
 F-57CONDENSED FINANCIAL INFORMATION OF REGISTRANT  SCHEDULE I
    
    
    F-58
 F-62




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
     Internal Control  Integrated
Framework
 Deloitte Touche Tohmatsu
 F-1




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##### Table of Contents



December 31,Notes

    
    
    2009
    
    
    2010ASSETSCurrent Assets:Cash and cash equivalents
    
    
    
    
    
    $
    68,834,087
    
    
    $
    67,211,336Restricted cash
    
    
    
    
    
    
    64,368,455
    
    
    
    70,061,961Accounts receivable, net of allowance
for doubtful accounts of $1,177,190 and $1,241,874 as of
December 31, 2009 and 2010, respectively
    
    
    4
    
    
    
    37,050,076
    
    
    
    51,084,505Amounts due from related parties
    
    
    20
    (a)
    
    
    4,334,472
    
    
    
    3,177,665Prepaid expenses and other current assets
    
    
    5
    
    
    
    10,049,007
    
    
    
    32,031,943Deferred tax assets
    
    
    15
    
    
    
    41,309
    
    
    
    Total current assets
    
    
    
    
    
    $
    184,677,406
    
    
    $
    223,567,410Non-current Assets:Fixed assets, net
    
    
    6
    
    
    $
    9,192,741
    
    
    $
    14,307,881Goodwill
    
    
    7
    
    
    
    109,017,669
    
    
    
    134,570,979Intangible assets, net
    
    
    8
    
    
    
    11,455,972
    
    
    
    43,941,934Investments under equity method
    
    
    9
    
    
    
    6,670,189
    
    
    
    6,618,828Other investments
    
    
    10
    
    
    
    2,660,189
    
    
    
    2,750,876Long-term prepayments and deposits
    
    
    11
    
    
    
    65,241,570
    
    
    
    13,778,574Restricted cash
    
    
    
    
    
    
    
    
    
    
    302,489Deferred tax assets
    
    
    15
    
    
    
    
    
    
    
    3,120,980Total non-current assets
    
    
    
    
    
    $
    204,238,330
    
    
    $
    219,392,541TOTAL ASSETS
    
    
    
    
    
    $
    388,915,736
    
    
    $
    442,959,951LIABILITIES AND EQUITYCurrent Liabilities:Short-term bank loans
    
    
    12
    
    
    $
    40,800,000
    
    
    $
    121,697,898Accounts payable
(including accounts payable of the consolidated variable
interest entities (VIEs) without recourse to VisionChina
Media Inc. (the Company) of $2,207,147 and $11,528,688
as of December 31, 2009 and 2010, respectively)
    
    
    
    
    
    
    2,311,224
    
    
    
    13,242,872Amounts due to related parties
    
    
    20
    (b)
    
    
    213,029
    
    
    
    1,752,061Consideration payable
(including consideration payable of the consolidated VIEs
without recourse to the Company of $47,873,901 and
$2,425,532 as of December 31, 2009 and 2010, respectively)
    
    
    3
    
    
    
    47,873,901
    
    
    
    36,425,532Income tax payable
(including income tax payable of the consolidated VIEs
without recourse to the Company of $2,411,156 and $443,350
as of December 31, 2009 and 2010, respectively)
    
    
    
    
    
    
    2,411,156
    
    
    
    443,350Accrued expenses and other current liabilities
(including accrued expenses and other current liabilities
of the consolidated VIEs without recourse to the Company
of $7,272,649 and $9,110,362 as of December 31, 2009
and 2010, respectively)
    
    
    13
    
    
    
    9,326,208
    
    
    
    11,953,226Total current liabilities
    
    
    
    
    
    $
    102,935,518
    
    
    $
    185,514,939
 F-2




---



##### Table of Contents



December 31,Notes

    
    
    2009
    
    
    2010Non-current Liabilities:Long-term bank loan
    
    
    12
    
    
    $
    731,294
    
    
    $
    Consideration payable (including consideration payable
of the consolidated VIEs without recourse to the Company
of $9,330,085 and Nil as of December 31, 2009 and 2010, respectively)
    
    
    3
    
    
    
    9,330,085
    
    
    
    29,631,318Deferred tax liabilities
    
    
    15
    
    
    
    2,503,125
    
    
    
    10,896,392Other non-current liability (including other non-current
liability of the consolidated VIEs without recourse to the
Company of Nil and $1,664,768 as of December 31, 2009 and 2010, respectively)
    
    
    
    
    
    
    
    
    
    
    1,664,768Total non-current liabilities
    
    
    
    
    
    
    12,564,504
    
    
    
    42,192,478Total liabilities
    
    
    
    
    
    $
    115,500,022
    
    
    $
    227,707,417Commitments and contingencies
    
    
    18EquityCommon shares ($0.0001 par value;
200,000,000 shares authorized; 72,140,684 and
84,894,888 shares issued and outstanding as of
December 31, 2009 and 2010, respectively)
    
    
    14
    
    
    $
    7,214
    
    
    $
    8,490Additional paid-in capital
    
    
    
    
    
    
    192,362,565
    
    
    
    273,934,960Accumulated profits (deficit)
    
    
    
    
    
    
    70,112,299
    
    
    
    (81,225,923
    )Accumulated other comprehensive income
    
    
    
    
    
    
    10,499,278
    
    
    
    22,067,477Total VisionChina Media Inc. shareholders equity
    
    
    
    
    
    $
    272,981,356
    
    
    $
    214,785,004Noncontrolling interest
    
    
    
    
    
    
    434,358
    
    
    
    467,530Total equity
    
    
    
    
    
    
    273,415,714
    
    
    
    215,252,534TOTAL LIABILITIES AND EQUITY
    
    
    
    
    
    $
    388,915,736
    
    
    $
    442,959,951
  F-3




---



##### Table of Contents



Year ended December 31,Notes
    
    
    2008
    
    
    2009
    
    
    2010Revenues:Advertising service revenue
    
    
    
    
    
    $
    103,515,250
    
    
    $
    120,686,086
    
    
    $
    138,056,640Advertising equipment revenue
    
    
    
    
    
    
    565,392
    
    
    
    
    
    
    
    Total revenues
    
    
    
    
    
    $
    104,080,642
    
    
    $
    120,686,086
    
    
    $
    138,056,640Cost of revenues:Advertising service cost
    
    
    
    
    
    
    40,602,022
    
    
    
    61,104,381
    
    
    
    121,000,454Advertising equipment cost
    
    
    
    
    
    
    475,432
    
    
    
    
    
    
    
    Total cost of revenues
    
    
    
    
    
    
    41,077,454
    
    
    
    61,104,381
    
    
    
    121,000,454Gross profit
    
    
    
    
    
    
    63,003,188
    
    
    
    59,581,705
    
    
    
    17,056,186Operating expenses:Selling and marketing expenses
    
    
    
    
    
    
    14,711,536
    
    
    
    24,620,897
    
    
    
    28,315,592General and administrative expenses
    
    
    
    
    
    
    5,414,571
    
    
    
    7,425,222
    
    
    
    9,499,717Impairment loss on intangible assets and goodwill
    
    
    7&8
    
    
    
    
    
    
    
    
    
    
    
    145,720,504Total operating expenses
    
    
    
    
    
    
    20,126,107
    
    
    
    32,046,119
    
    
    
    183,535,813Government grant
    
    
    
    
    
    
    
    
    
    
    538,085
    
    
    
    Loss from equity method investees
    
    
    
    
    
    
    (484,969
    )
    
    
    (998,606
    )
    
    
    (109,989
    )Operating profit (loss)
    
    
    
    
    
    
    42,392,112
    
    
    
    27,075,065
    
    
    
    (166,589,616
    )Interest income
    
    
    
    
    
    
    3,480,212
    
    
    
    1,860,017
    
    
    
    2,082,605Interest expense
    
    
    
    
    
    
    
    
    
    
    (109,590
    )
    
    
    (4,952,239
    )Government grant
    
    
    
    
    
    
    672,515
    
    
    
    
    
    
    
    Other expenses
    
    
    
    
    
    
    (38,491
    )
    
    
    (1,278
    )
    
    
    Net income (loss) before income taxes
    
    
    
    
    
    
    46,506,348
    
    
    
    28,824,214
    
    
    
    (169,459,250
    )Income tax benefit (expense)
    
    
    15
    
    
    
    212,325
    
    
    
    (2,348,254
    )
    
    
    18,202,289Net income (loss)
    
    
    
    
    
    
    46,718,673
    
    
    
    26,475,960
    
    
    
    (151,256,961
    )Net loss (income) attributable to noncontrolling interest
    
    
    
    
    
    
    91,277
    
    
    
    127,043
    
    
    
    (81,261
    )Net income (loss) attributable to VisionChina
Media Inc. shareholders
    
    
    
    
    
    $
    46,809,950
    
    
    $
    26,603,003
    
    
    $
    (151,338,222
    )Net income (loss) per share:Basic
    
    
    
    
    
    $
    0.67
    
    
    $
    0.37
    
    
    $
    (1.83
    )Diluted
    
    
    
    
    
    $
    0.65
    
    
    $
    0.37
    
    
    $
    (1.83
    )Weighted average number of shares used in computation
of net income (loss) per share:Basic
    
    
    
    
    
    
    70,064,663
    
    
    
    71,686,900
    
    
    
    82,739,234Diluted
    
    
    
    
    
    
    72,404,916
    
    
    
    72,676,438
    
    
    
    82,739,234Share-based compensation expenses during the
related periods included in:Cost of revenues
    
    
    
    
    
    $
    39,847
    
    
    $
    63,477
    
    
    $
    100,711Selling and marketing expenses
    
    
    
    
    
    
    1,163,623
    
    
    
    3,698,329
    
    
    
    432,632General and administrative expenses
    
    
    
    
    
    
    263,587
    
    
    
    570,305
    
    
    
    414,162
  F-4




---



##### Table of Contents



VisionChina Media Inc. shareholders
    
    
    
    
    
    
    
    
    
    
    Comprehensive income (loss)Accumulated
    
    
    
    
    
    
    
    
    
    
    Attributable toAdditional
    
    
    
    
    
    
    other
    
    
    
    
    
    
    
    
    
    
    VisionChina
    
    
    Attributable toCommon shares
    
    
    paid-in
    
    
    Accumulated
    
    
    comprehensive
    
    
    Noncontrolling
    
    
    
    
    
    
    Media Inc.
    
    
    noncontrollingNumber
    
    
    Amount
    
    
    capital
    
    
    (deficit) profits
    
    
    income
    
    
    interest
    
    
    Total
    
    
    shareholders
    
    
    interest
    
    
    TotalBalance as of January 1, 2008
    
    
    68,386,838
    
    
    $
    6,839
    
    
    $
    163,820,443
    
    
    $
    (3,300,654
    )
    
    $
    3,502,191
    
    
    
    652,678
    
    
    $
    164,681,497Issuance of common
shares pursuant to
follow-on offering
    
    
    1,150,000
    
    
    
    115
    
    
    
    17,569,585
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,569,700Direct offering expenses
    
    
    
    
    
    
    
    
    
    
    (1,613,738
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,613,738
    )Shares repurchase
    
    
    (281,400
    )
    
    
    (28
    )
    
    
    (1,454,628
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,454,656
    )Exercise of share options
    
    
    2,525,893
    
    
    
    252
    
    
    
    10,906,004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,906,256Restricted shares
    
    
    38,111
    
    
    
    4
    
    
    
    (4
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Share-based compensation
    
    
    
    
    
    
    
    
    
    
    1,467,057
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,467,057Cumulative translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,359,826
    
    
    
    
    
    
    
    7,359,826
    
    
    $
    7,359,826
    
    
    $
    
    
    
    $
    7,359,826Net income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46,809,950
    
    
    
    
    
    
    
    (91,277
    )
    
    
    46,718,673
    
    
    
    46,809,950
    
    
    
    (91,277
    )
    
    
    46,718,673$
    54,169,776
    
    
    $
    (91,277
    )
    
    $
    54,078,499Balance as of December 31, 2008
    
    
    71,819,442
    
    
    $
    7,182
    
    
    $
    190,694,719
    
    
    $
    43,509,296
    
    
    $
    10,862,017
    
    
    
    561,401
    
    
    $
    245,634,615Shares repurchase
    
    
    (658,980
    )
    
    
    (66
    )
    
    
    (3,582,449
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,582,515
    )Exercise of share options
    
    
    423,139
    
    
    
    42
    
    
    
    918,240
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    918,282Restricted shares
    
    
    557,083
    
    
    
    56
    
    
    
    (56
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Share-based compensation
    
    
    
    
    
    
    
    
    
    
    4,332,111
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,332,111Cumulative translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (362,739
    )
    
    
    
    
    
    
    (362,739
    )
    
    $
    (362,739
    )
    
    $
    
    
    
    $
    (362,739
    )Net income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,603,003
    
    
    
    
    
    
    
    (127,043
    )
    
    
    26,475,960
    
    
    
    26,603,003
    
    
    
    (127,043
    )
    
    
    26,475,960
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    26,240,264
    
    
    $
    (127,043
    )
    
    $
    26,113,221Balance as of December 31, 2009
    
    
    72,140,684
    
    
    $
    7,214
    
    
    $
    192,362,565
    
    
    $
    70,112,299
    
    
    $
    10,499,278
    
    
    $
    434,358
    
    
    $
    273,415,714Shares issued for DMG Acquisition
(as defined in Note 3)
    
    
    8,476,013
    
    
    
    848
    
    
    
    67,566,538
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    67,567,386Shares issued to certain
subscribers (Note 14)
    
    
    4,006,474
    
    
    
    401
    
    
    
    12,900,846
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,901,247Noncontrolling interest acquired
in DMG Acquisition
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,403
    
    
    
    2,403Exercise of share options
    
    
    202,800
    
    
    
    20
    
    
    
    157,513
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    157,533Restricted shares
    
    
    68,917
    
    
    
    7
    
    
    
    (7
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Share-based compensation
    
    
    
    
    
    
    
    
    
    
    947,505
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    947,505Dividend paid to a noncontrolling
interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (50,492
    )
    
    
    (50,492
    )Cumulative translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,568,199
    
    
    
    
    
    
    
    11,568,199
    
    
    $
    11,568,199
    
    
    $
    
    
    
    $
    11,568,199Net (loss) income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (151,338,222
    )
    
    
    
    
    
    
    81,261
    
    
    
    (151,256,961
    )
    
    
    (151,338,222
    )
    
    
    81,261
    
    
    
    (151,256,961
    )$
    (139,770,023
    )
    
    
    81,261
    
    
    $
    (139,688,762
    )Balance as of December 31, 2010
    
    
    84,894,888
    
    
    
    8,490
    
    
    
    273,934,960
    
    
    
    (81,225,923
    )
    
    
    22,067,477
    
    
    
    467,530
    
    
    
    215,252,534
  F-5




---



##### Table of Contents



For the year ended December 31,Notes
    
    
    2008
    
    
    2009
    
    
    2010Cash flows from operating activities:Net income (loss)
    
    
    
    
    
    $
    46,718,673
    
    
    $
    26,475,960
    
    
    $
    (151,256,961
    )Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:Allowance for doubtful accounts
    
    
    4
    
    
    
    675,108
    
    
    
    627,169
    
    
    
    585,502Depreciation and amortization
    
    
    
    
    
    
    3,285,032
    
    
    
    5,150,952
    
    
    
    16,410,245Impairment loss on intangible assets and goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    145,720,504Write-off of fixed assets
    
    
    
    
    
    
    
    
    
    
    30,005
    
    
    
    61,056Loss from equity method investees
    
    
    
    
    
    
    484,969
    
    
    
    998,606
    
    
    
    109,989Share-based compensation
    
    
    
    
    
    
    1,467,057
    
    
    
    4,332,111
    
    
    
    947,505Finance cost on consideration payable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    664,246Deferred tax
    
    
    15
    
    
    
    (251,433
    )
    
    
    (183,138
    )
    
    
    (18,008,959
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    
    
    
    
    (24,799,643
    )
    
    
    620,661
    
    
    
    (9,237,956
    )Amounts due from related parties
    
    
    
    
    
    
    (138,304
    )
    
    
    891,092
    
    
    
    1,307,017Prepaid expenses and other current assets
    
    
    
    
    
    
    (4,268,436
    )
    
    
    (3,971,230
    )
    
    
    (13,676,430
    )Accounts payable
    
    
    
    
    
    
    (3,292,601
    )
    
    
    1,073,962
    
    
    
    7,484,947Accrued expenses and other current liabilities
    
    
    
    
    
    
    4,060,020
    
    
    
    1,552,425
    
    
    
    (1,686,546
    )Amounts due to related parties
    
    
    
    
    
    
    350,158
    
    
    
    (573,255
    )
    
    
    811,541Income tax payable
    
    
    
    
    
    
    39,209
    
    
    
    2,371,947
    
    
    
    (2,446,445
    )Net cash provided by (used in) operating activities
    
    
    
    
    
    
    24,329,809
    
    
    
    39,397,267
    
    
    
    (22,210,745
    )Cash flows from investing activities:Settlements of consideration payable
    
    
    3
    
    
    
    
    
    
    
    (64,249,402
    )
    
    
    (68,509,178
    )Net cash inflow from acquisition of subsidiaries
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    3,840,983Acquisitions of fixed assets
    
    
    
    
    
    
    (4,961,083
    )
    
    
    (1,408,117
    )
    
    
    (3,435,173
    )Acquisitions of intangible assets
    
    
    
    
    
    
    
    
    
    
    (234,599
    )
    
    
    (133,095
    )(Increase)
decrease in restricted cash
    
    
    
    
    
    
    
    
    
    
    (64,368,455
    )
    
    
    38,607,862Deposits for acquisitions of subsidiaries
    
    
    3
    
    
    
    (16,689,988
    )
    
    
    (40,000,000
    )
    
    
    Investment in other investments
    
    
    
    
    
    
    
    
    
    
    (389,048
    )
    
    
    Investment in equity method investments
    
    
    
    
    
    
    (111,396
    )
    
    
    
    
    
    
    Net cash used in investing activities
    
    
    
    
    
    
    (21,762,467
    )
    
    
    (170,649,621
    )
    
    
    (29,628,601
    )Cash flows from financing activities:Proceeds from bank loans
    
    
    
    
    
    
    
    
    
    
    41,531,294
    
    
    
    78,181,484Repayment of bank loans
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (42,849,029
    )Proceeds from issuance of common shares
    
    
    
    
    
    
    17,569,700
    
    
    
    
    
    
    
    12,901,247Proceeds from exercise of share options
    
    
    
    
    
    
    10,906,256
    
    
    
    918,282
    
    
    
    157,533Share repurchases
    
    
    
    
    
    
    
    
    
    
    (5,037,171
    )
    
    
    Payments of direct offering expenses
    
    
    
    
    
    
    (3,860,716
    )
    
    
    (278,902
    )
    
    
    Dividend paid to a noncontrolling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (50,492
    )Net cash provided by financing activities
    
    
    
    
    
    
    24,615,240
    
    
    
    37,133,503
    
    
    
    48,340,743Effect of changes in exchange rate
    
    
    
    
    
    
    4,926,045
    
    
    
    (295,348
    )
    
    
    1,875,852Net increase (decrease) in cash and cash equivalents
    
    
    
    
    
    
    32,108,627
    
    
    
    (94,414,199
    )
    
    
    (1,622,751
    )Cash and cash equivalents at the beginning of the year
    
    
    
    
    
    
    131,139,659
    
    
    
    163,248,286
    
    
    
    68,834,087Cash and cash equivalents at the end of the year
    
    
    
    
    
    $
    163,248,286
    
    
    $
    68,834,087
    
    
    
    67,211,336Supplemental disclosure of cash flow information:Income taxes paid
    
    
    
    
    
    $
    
    
    
    $
    159,445
    
    
    $
    2,253,115Interest paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,397,583Non-cash investing and financing activities:Capitalization of an amount due from an existing
equity method investee
    
    
    
    
    
    $
    897,032
    
    
    $
    
    
    
    $
    Shares issued as part of consideration
for acquisition of subsidiaries (Note 3)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    67,567,386Shares repurchase not yet settled
    
    
    
    
    
    
    1,454,656
    
    
    
    
    
    
    
    
  F-6




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##### Table of Contents



1.
    
    ORGANIZATION AND PRINCIPAL ACTIVITIESVisionChina Media Inc. (the Company) was incorporated under the laws of the Cayman Islands
on January 27, 2006. The Company and its subsidiaries and variable interest entities (the
Group) sell advertising time on its out-of-home digital television networks in the
Peoples Republic of China (the PRC). The Groups principal geographic market is in the
PRC.The Company holds its interest in the operating subsidiaries and investees through a holding
company, China Digital Technology Consulting Co., Ltd. (CDTC), which is a wholly owned
company established in the PRC on March 9, 2006. The Company does not conduct any
substantive operations of its own, but conducts its primary business operations through
CDTCs variable interest entity (VIE), VisionChina Media Group Limited (VisionChina Media
Group) and VisionChina Media Groups subsidiaries and investees. VisionChina Media Group
was established under the laws of the PRC on April 8, 2005.In January 2010, pursuant to an agreement entered into between the Company and Digital Media
Group Company Limited (DMG), the Company acquired a 100% equity interest in DMG, which
sells advertising time on its out-of-home digital television networks in the PRCs subway.DMG was incorporated under the laws of the British Virgin Islands on May 13, 2003. DMG, its
subsidiaries and VIE sell advertising time on its out-of-home digital television networks in
the PRC and Hong Kong Special Administrative Region (HK) and provide passenger information
and direction system (PIDS) in the PRC. DMG does not conduct any substantive operations
of its own, but conducts its primary business through its wholly-owned subsidiaries, DMG
(HK) Co., Limited (DMG HK), Beijing Eastlong Technology Development Co., Ltd. (Eastlong
Technology), Eastlong Technologys VIE, Beijing Eastlong Advertising Co., Ltd. (Eastlong
Advertising), and Eastlong Advertisings subsidiaries and equity investees.The VIE contractual arrangementsChinese laws and regulations prohibit or restrict foreign ownership of media content and
advertising business. To comply with these foreign ownership restrictions, the Group
invests in ventures with local television stations and provides advertising services on its
out-of-home digital television networks in the PRC through VisionChina Media Group and
Eastlong Advertising, which are PRC legal entities established by co-founders of the Company
and DMG, respectively.Applicable PRC laws and regulations prohibit foreign investment in and ownership of mobile
advertising agencies. As a Cayman Islands corporation, the Company is deemed a foreign legal
person under PRC laws.To provide the Company with effective control over the two VIEs, namely VisionChina Media
Group and Eastlong Advertising, and the ability to receive substantially all of the economic
benefits of the VIEs and their subsidiaries, a series of contractual arrangements were
entered amongst:
 
    
    CDTC, VisionChina Media Group and direct equity holders of VisionChina Media Group;
and
    
    Eastlong Technology, Eastlong Advertising and direct equity holders of Eastlong
Advertising.
 F-7




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##### Table of Contents



1.
    
    ORGANIZATION AND PRINCIPAL ACTIVITIES continuedThe VIE contractual arrangements continuedAgreements that transfer economic benefits to CDTC and Eastlong Technology:Technology and management services agreementPursuant to the technology and management service agreement and amendments thereto entered
into on March 30, 2006 and February 15, 2007 between CDTC and VisionChina Media Group, CDTC
provides technology consulting and management services related to the business operations of
VisionChina Media Group. As consideration for such services, VisionChina Media Group has
agreed to pay service fees as specified by CDTC in its fee notice to VisionChina Media Group
from time to time. The fees payable are calculated based on hourly rates set forth in the
agreement or otherwise agreed upon between the parties. The term of this agreement is 25
years from the date thereof. In the event of a default under this agreement, the
non-defaulting party can terminate this agreement.Domain Name License AgreementPursuant to the domain name license agreement and amendments thereto entered into on March
30, 2006 and February 15, 2007 between CDTC and VisionChina Media Group, CDTC grants
VisionChina Media Group the exclusive right to use its domain names, in exchange for a fee
based on the gross annual revenues of VisionChina Media Group. The fee is subject to
periodic adjustments by the parties. The agreement has a term of 25 years, which may be
terminated at any time or extended by CDTC at its discretion. In the event of a default
under this agreement, the non-defaulting party can terminate this agreement.Business Cooperation AgreementPursuant to the business cooperation agreement and amendments thereto entered into on
February 22, 2005 between Eastlong Technology and Eastlong Advertising, Eastlong Advertising
may establish entities for the purposes of operating an out-of-home advertising platform and
selling advertisements or value-added services on that platform. Eastlong Technology
provides Eastlong Advertising with technology consulting services related to the conduct of
its business. As consideration for such services, the profits generated by Eastlong
Advertising shall be transferred to Eastlong Technology in accordance with the business
cooperation agreement. Eastlong Technology is the exclusive and sole cooperating partner of
Eastlong Advertising. Eastlong Technology has right to appoint and elect board members and
senior management members of Eastlong Advertising. The term of this agreement commences on
February 22, 2005 and remains in effect unless Eastlong Technology ceases to exist. This
agreement can be terminated if Eastlong Technology is unable to provide any services to
Eastlong Advertising for a continuous period of more than three years due to force majeure.
 F-8




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##### Table of Contents



1.
    
    ORGANIZATION AND PRINCIPAL ACTIVITIES continuedThe VIE contractual arrangements continuedAgreements that provide the Company with effective control over VisionChina Media Group and
Eastlong Advertising:Loan AgreementsCDTC entered into a loan agreement and amendments thereto with Mr. Limin Li and Ms. Yanqing
Liang, direct equity holders of VisionChina Media Group, on March 30, 2006 and February 15,
2007, which allows the Company to capitalize the PRC operating affiliates in VisionChina
Media Group and facilitates the establishment of the current corporate structure in
VisionChina Media Group. CDTC made an interest-free loan of RMB50 million to the direct
equity holders of VisionChina Media Group. The loan can be repaid only with the proceeds
from the transfer of equity interest in VisionChina Media Group owned by the direct equity
holders to CDTC or to another person designated by CDTC pursuant to the Option Agreement as
discussed below. In the event of a default under this agreement, the non-defaulting party
can terminate this agreement.Eastlong Technology entered into a series of loan agreements and amendments thereto with Mr.
Qijun Men and Mr. Haifeng Wang, direct equity holders of Eastlong Advertising, in February
2005, March 2007 and May 2008, respectively, which allowed Eastlong Advertising to
capitalize its PRC operating affiliates and facilitates the establishment of the corporate
structure. Eastlong Technology made an interest-free loan of RMB20 million to the direct
equity holders of Eastlong Advertising. This loan can only be repaid by transferring the
equity interest in Eastlong Advertising owned by the direct equity holders to Eastlong
Technology or to another person designated by Eastlong Technology. In the event of a default
under this agreement, the non-defaulting party can terminate this agreement.Proxy LetterMr. Limin Li and Ms. Yanqing Liang, direct equity holders of VisionChina Media Group, signed
certain proxy letters on February 15, 2007, pursuant to which Mr. Limin Li and Ms. Yanqing
Liang have granted an employee of CDTC, who is a PRC citizen, the right to exercise all
their voting rights as equity holders of VisionChina Media Group as provided under its
articles of association, including the right to appoint and elect board members and senior
management members of VisionChina Media Group. Such grant must be approved by CDTC and the
grantee must be an employee of CDTC. If the grantee ceases to be an employee of CDTC, then
the grantors will revoke the proxy and grant a similar proxy to a then-current employee of
CDTC designated by CDTC. The proxy letters will remain effective until February 15, 2032.Option AgreementsCDTC, Mr. Limin Li and Ms. Yanqing Liang entered into an option agreement on February 15,
2007, pursuant to which CDTC has an exclusive option to purchase, or to designate another
qualified person to purchase, to the extent permitted by PRC law and foreign investment
policies, part or all of the equity interests in VisionChina Media Group owned by Mr. Limin
Li and Ms. Yanqing Liang. The purchase price for the entire equity interest shall be the
greater of (i) RMB50 million and (ii) the minimum price permitted by applicable PRC law and
agreed upon by the parties. The option agreement remains in effect until the completion of
the transfer of all the equity interests in accordance with the option agreement. In the
event of a default under this agreement, the non-defaulting party can terminate this
agreement.
 F-9




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##### Table of Contents



1.
    
    ORGANIZATION AND PRINCIPAL ACTIVITIES continuedThe VIE contractual arrangements continuedAgreements that provide the Company with effective control over VisionChina Media Group and
Eastlong Advertising continued:Eastlong Technology, Mr. Qijun Men and Mr. Haifeng Wang entered into a series of option
agreements and amendments thereto in February 2005, March 2007 and May 2008, respectively,
pursuant to which Eastlong Technology has an exclusive option to purchase, or to designate
another qualified person to purchase, to the extent permitted by the PRC law and foreign
investment policies, all of the equity interests in Eastlong Advertising owned by Mr. Qijun
Men and Mr. Haifeng Wang. The purchase price for the entire equity interest shall be RMB20
million. The option agreement remains in effect until the completion of the transfer of all
the equity interests in accordance with the option agreements.The above contractual arrangements allow the Group to effectively control VisionChina Media
Group, Eastlong Advertising and their subsidiaries, and to derive substantially all of the
economic benefits from them. Accordingly, the Group treats VisionChina Media Group and
Eastlong Advertising as VIEs. Because the Group is the primary beneficiary of VisionChina
Media Group and Eastlong Advertising, the Group has consolidated the financial results of
VisionChina Media Group and Eastlong Advertising and their subsidiaries.These agreements are currently legally enforceable in the PRC. However, there are certain
risks related to the VIE arrangements, which include but are not limited to the following:
 
    
    If the ownership structure and contractual arrangements are found to be in
violation of any existing or future PRC laws or regulations, the Group could be subject
to severe penalties;
    
    The Group relies on contractual arrangements with the VIEs and their equity
holders for substantially all of its PRC operations, which may not be as effective as
direct ownership in providing operational control; and
    
    The Group may have to incur significant cost to enforce, or may not be able to
effectively enforce, the contractual arrangements with the VIEs and their equity
holders in the event of a breach or non-compliance by the VIEs or their equity holders.
 In June 2009, the Financial Accounting Standards Board (FASB) issued an authoritative
pronouncement to amend the accounting rules for variable interest entities. The amendments
effectively replace the quantitative-based risks-and-rewards calculation for determining
which reporting entity, if any, has a controlling financial interest in a variable interest
entity with an approach focused on identifying which reporting entity has (1) the power to
direct the activities of a variable interest entity that most significantly affect the
entitys economic performance and (2) the obligation to absorb losses of, or the right to
receive benefits from, the entity. Additionally, an enterprise is required to assess whether
it has an implicit financial responsibility to ensure that a variable interest entity
operates as designed when determining whether it has the power to direct the activities of
the variable interest entity that most significantly impact the entitys economic
performance. The new guidance also requires additional disclosures about a reporting
entitys involvement with variable interest entities and about any significant changes in
risk exposure as a result of that involvement. The Company adopted the new guidance for the
year ended December 31, 2010.The Company has two VIEs, VisionChina Media Group and Eastlong Advertising, which it has
consolidated under the authoritative literature because it is the primary beneficiary of the
VIEs. Since the Company, through its subsidiaries, has (1) the power to direct the
activities of the VIEs that most significantly affect the VIEs economic performance and (2)
the right to receive benefits from the VIE, the Company will continue to consolidate the
VIEs upon the adoption of the new guidance, which, other than for additional disclosures,
has no accounting impact on the Companys consolidated financial statements.
 F-10




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##### Table of Contents



1.
    
    ORGANIZATION AND PRINCIPAL ACTIVITIES continuedThe VIE contractual arrangements continuedThe financial information of the Companys VIEs and VIEs subsidiaries as of December 31,
2009 and 2010 and for the years ended December 31, 2008, 2009 and 2010 is as follows:
 December 31,2009
    
    
    2010Total assets
    
    $
    268,576,744
    
    
    $
    414,749,161Total liabilities
    
    
    (165,550,085
    )
    
    
    (464,874,596
    )
 Year ended December 31,2008
    
    
    2009
    
    
    2010Total revenues
    
    $
    102,830,126
    
    
    $
    120,747,711
    
    
    $
    138,056,640Net income (loss)
    
    
    48,586,681
    
    
    
    33,145,938
    
    
    
    (110,259,691
    )Net cash provided by operating activities
    
    
    18,991,827
    
    
    
    41,206,699
    
    
    
    1,760,983Net cash
provided by (used in) investing activities
    
    
    7,494,751
    
    
    
    (92,614,579
    )
    
    
    (55,717,423
    )Net cash provided by (used in) financing activities
    
    
    61,356,102
    
    
    
    (16,810,699
    )
    
    
    (58,334,979
    )
 The Groups consolidated assets do not include any collateral for VisionChina Media Groups
and Eastlong Advertisings obligations.There was no pledge or collateral of the assets either in VisionChina Media Group or
Eastlong Advertising. Creditors of VisionChina Media Group have no recourse to the general
credit of CDTC or the Company, which is the primary beneficiary of VisionChina Media Group.
Creditors of Eastlong Advertising have no recourse to the general credit of Eastlong
Technology or the Company, which is primary beneficiary of Eastlong Advertising.
 F-11




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##### Table of Contents



1.
    
    ORGANIZATION AND PRINCIPAL ACTIVITIES continuedAs of December 31, 2010, the Companys subsidiaries and VIEs and VIEs subsidiaries include
the following entities:
 Date of
    
    Date of
    
    Place ofacquisition
    
    establishment/
    
    establishment/
    
    Percentage ofCompanies
    
    by the Company
    
    incorporation
    
    incorporation
    
    ownershipSubsidiaries of the CompanyCDTC
    
    N/A
    
    March 9, 2006
    
    PRC
    
    100%Aim Sky International Limited (Aim)
    
    April 1, 2008
    
    January 1, 2008
    
    British Virgin  Islands (BVI)
    
    100%Win Prosper Development Limited
    
    N/A
    
    April 23, 2008
    
    HK
    
    100%Century Port Limited (Century)
    
    May 1, 2008
    
    March 20, 2008
    
    BVI
    
    100%Golden Carriage International
Limited (Golden)
    
    May 1, 2008
    
    December 13, 2007
    
    BVI
    
    100%Goldwhite Limited (Goldwhite)
    
    May 1, 2008
    
    March 21, 2008
    
    BVI
    
    100%Peak Win Limited (Peak)
    
    May 1, 2008
    
    March 19, 2008
    
    BVI
    
    100%Ahead Smart Holdings Limited (Ahead)
    
    August 4, 2008
    
    June 18, 2008
    
    BVI
    
    100%Vision Best Limited (Vision Best)
    
    N/A
    
    September 23, 2009
    
    BVI
    
    100%Whole Genius Limited
    
    N/A
    
    May 16, 2008
    
    HK
    
    100%DMG
    
    January 2, 2010
    
    May 15, 2003
    
    BVI
    
    100%DMG HK
    
    January 2, 2010
    
    October 10, 2003
    
    HK
    
    100%Eastlong Technology
    
    January 2, 2010
    
    December 10, 2001
    
    PRC
    
    100%Shenzhen Huachangshi Digital
Technology Co., Ltd.
(Huachangshi)
    
    N/A
    
    November 27, 2008
    
    PRC
    
    100%Shenzhen Huadingshi Digital
Technology Co., Ltd.
(Huadingshi)
    
    N/A
    
    December 20, 2010
    
    PRC
    
    100%Dienzhi Advertising (Shanghai)
Co., Ltd
    
    January 2, 2010
    
    March 19, 2009
    
    PRC
    
    100%VIE of CDTCVisionChina Media Group
    
    N/A
    
    April 8, 2005
    
    PRC
    
    (a)
 F-12




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##### Table of Contents



1.
    
    ORGANIZATION AND PRINCIPAL ACTIVITIES continued
 Date of
    
    Date of
    
    Place ofacquisition
    
    establishment/
    
    establishment/
    
    Percentage ofCompanies
    
    by the Company
    
    incorporation
    
    incorporation
    
    ownershipSubsidiaries of VisionChina Media GroupShenzhen HDTV Industry
Investment Co., Ltd.
(Shenzhen HDTV)
    
    February 17, 2006
    
    June 16, 2004
    
    PRC
    
    100%Beijing Beiguang Media
Mobile Television Advertising
Co., Ltd. (Beiguang Media)
    
    N/A
    
    December 18, 2006
    
    PRC
    
    100%Beijing Huaguangshi Co., Ltd.
    
    N/A
    
    April 22, 2008
    
    PRC
    
    100%Beijing Hua Jingshi Media Advertising
Co., Ltd. (Beijing Hua Jingshi)
    
    N/A
    
    July 26, 2007
    
    PRC
    
    100%Beijing Hua Meishi Advertising
Co., Ltd. (Beijing Hua Meishi)
    
    N/A
    
    May 25, 2007
    
    PRC
    
    100%Luzhou Huashi Digital Technology
Co., Ltd. (Luzhou Huashi)
    
    N/A
    
    November 21, 2008
    
    PRC
    
    100%Nanjing Hua Meishi Advertising
Co., Ltd. (Nanjing Hua Meishi)
    
    N/A
    
    July 16, 2007
    
    PRC
    
    100%Shenzhen Hua Meishi Advertising
Co., Ltd. (Shenzhen Hua Meishi)
    
    N/A
    
    June 29, 2007
    
    PRC
    
    100%Shenzhen Huashixin Culture Media
Co., Ltd. (Shenzhen Huashixin)
    
    N/A
    
    September 3, 2007
    
    PRC
    
    100%Nanjing Media Culture
Co., Ltd. (Nanjing Media Culture)
    
    N/A
    
    March 28, 2007
    
    PRC
    
    100%Guangzhou Jiaojian Multimedia
Information Technology
Co., Ltd. (Guangzhou Jiaojian)
    
    N/A
    
    October 8, 2007
    
    PRC
    
    50%Shanghai Junshi Advertising
Co., Ltd. (Shanghai Junshi)
    
    N/A
    
    June 11, 2008
    
    PRC
    
    100%Xian Qujiang Huachangshi Digital
Technology Co., Ltd.
(Xian Huachangshi)
    
    N/A
    
    November 12, 2009
    
    PRC
    
    100%VIE of Eastlong TechnologyEastlong Advertising
    
    January 2, 2010
    
    March 30, 2004
    
    PRC
    
    (b)Subsidiaries of Eastlong AdvertisingChongqing Light Rail Information
Services Co., Ltd. (DMG
Chongqing)
    
    January 2, 2010
    
    December 30, 2004
    
    PRC
    
    61.75%Nanjing Metro Operation
Information Service Co., Ltd.
(DMG Nanjing)
    
    January 2, 2010
    
    September 13, 2006
    
    PRC
    
    100%Shenzhen Metro Operation
Information Service Co., Ltd.
(DMG Shenzhen)
    
    January 2, 2010
    
    August 10, 2005
    
    PRC
    
    100%Tianjin Metro Operation
Information Service Co., Ltd.
(DMG Tianjin)
    
    January 2, 2010
    
    September 22, 2005
    
    PRC
    
    100%Dienzhi Advertising (Beijing)
Co., Ltd.
    
    January 2, 2010
    
    June 17, 2009
    
    PRC
    
    100%
 
 (a):
    
    Through a series of contractual arrangements, VisionChina
Media Group became a VIE of CDTC.(b):
    
    Through a series of contractual arrangements, Eastlong
Advertising became a VIE of Eastlong Technology. F-13




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##### Table of Contents



1.
    
    ORGANIZATION AND PRINCIPAL ACTIVITIES continuedAs of December 31, 2010, the Groups equity method investees include the following entities:
 Date ofacquisition
    
    Date of
    
    Place of
    
    Percentage ofInvestee companies
    
    by the Company
    
    establishment
    
    establishment
    
    ownershipChengdu Mobile Digital
Television Company Limited
(Chengdu Mobile)
    
    N/A
    
    April 29, 2005
    
    PRC
    
    49%Haerbin China Mobile
Television Company limited
(Haerbin Mobile)
    
    N/A
    
    November 10, 2005
    
    PRC
    
    49%Jilin Mobile
Television Company Limited
(Jilin Mobile)
    
    N/A
    
    November 8, 2005
    
    PRC
    
    49%Dalian Mobile Digital
Television Company Limited
(Dalian Mobile)
    
    N/A
    
    February 20, 2006
    
    PRC
    
    49%Henan China Digital Mobile
Television Company Limited
(Henan Mobile)
    
    N/A
    
    July 4, 2006
    
    PRC
    
    49%Hubei China Digital
Television Company Limited
(Hubei Mobile)
    
    N/A
    
    July 26, 2006
    
    PRC
    
    49%Suzhou China Digital Mobile
Television Company Limited
(Suzhou Mobile)
    
    N/A
    
    February 17, 2007
    
    PRC
    
    49%Changzhou China Digital Mobile
Television Company Limited
(Changzhou Mobile)
    
    N/A
    
    March 19, 2007
    
    PRC
    
    49%Ningbo China Digital Mobile
Television Company Limited
(Ningbo Mobile)
    
    N/A
    
    April 5, 2007
    
    PRC
    
    49%Zhongguanguoji Metro TV
(Beijing) Co., Ltd.
(Zhongguanguoji)
    
    January 2, 2010
    
    December 22, 2005
    
    PRC
    
    49%
 Apart from Zhongguanguoji, the Groups equity method investees have been separately
formed with nine separate parties for the purpose of engaging in provision of digital mobile
television advertising services in the PRC. VisionChina Media Group contributed cash and
another investor contributed advertising broadcasting rights to the equity method investees
for 49% and 51% equity interests, respectively.
 F-14




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##### Table of Contents



2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 (a)
    
    Basis of presentationThe consolidated financial statements of the Company have been prepared in accordance
with the accounting principles generally accepted in the United States of America
(US GAAP).(b)
    
    Principles of ConsolidationThe consolidated financial statements include the financial statements of the
Company, its subsidiaries and VIEs for which the Company is the primary beneficiary.
All inter-company transactions and balances have been eliminated on consolidation.(c)
    
    Noncontrolling interestNoncontrolling interest has been reported as a component of equity in the
consolidated balance sheets and consolidated statements of changes of equity and
comprehensive income (loss) for all periods presented in accordance with Accounting Standard
Codification (ASC) 810, Consolidation  Noncontrolling Interest in a Subsidiary,
issued by FASB.(d)
    
    Significant risks and uncertaintiesThe Group participates in a dynamic industry and believes that changes in any of the
following areas could have a material adverse effect on the Groups future financial
position, results of operations or cash flows: advances and trends in new
technologies or industry standards; competition; changes in key suppliers; changes in
certain strategic relationships; regulatory or other PRC related factors such as PRC
tax rules and etc.; risks associated with the Groups ability to attract and retain
employees necessary to support its growth; and general risks associated with the
advertising industry.(e)
    
    Cash and cash equivalentsCash and cash equivalents consist of cash on hand and highly liquid investments which
are unrestricted as to withdrawal or use, and which have maturities of three months
or less when purchased.(f)
    
    Restricted cashRestricted cash represents the amount of cash pledged as securities for outstanding
bank loans to financial institutions and the bank deposits placed in escrow accounts
as the performance security for certain PIDS agreements. Restricted cash pledged as
securities for outstanding short-term bank loans to financial institutions is
classified as current asset, while restricted cash related to bank deposits in escrow
accounts as the performance security for certain PIDS agreements which are not
expected to be completed within one year is classified as non-current asset.
 F-15




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##### Table of Contents



2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
 (g)
    
    Accounts receivableAccounts receivable primarily represent amounts due from customers, which are
recorded at the invoiced amount or at an amount in accordance with the contractual
terms agreed with the advertising customers, and do not bear interest. The Group
reviews its accounts receivable on a periodic basis and records allowances when there
is a doubt as to the collectibility of the balance. In evaluating the collectibility
of the accounts receivable balances, the Group considers various factors, including
the age of the balance, customer specific facts and economic conditions. Accounts
receivable balances are charged off against the allowance after all means of
collection have been exhausted and the potential for recovery is considered remote.
The Group does not have any off-balance-sheet credit exposure related to its
customers.(h)
    
    Intangible assets, netIntangible assets, which consist of concession contracts, customer base, non-compete
agreements, technology, trademark and patents are carried at cost less accumulated
amortization. Amortization is calculated using the straight-line method over their
respective expected useful lives as follows:
 Estimated use lifeCustomer base
    
    5 yearsNon-compete agreements
    
    10 yearsPatents
    
    10 yearsTrademark
    
    10 yearsConcession contracts
    
    9 yearsTechnology
    
    9 years
 (i)
    
    Fixed assets, netFixed assets are carried at cost less accumulated depreciation and amortization.
Assembly in progress is not depreciated until it is ready for its intended use.Depreciation and amortization is computed on a straight-line basis over the following
estimated useful lives, after taking into account the residual values:
 Media display equipment
    
    5 yearsComputers and office equipment
    
    5 yearsMotor vehicles
    
    5 yearsLeasehold improvements
    
    lesser of lease terms or the estimated useful lives of the assets
 (j)
    
    Investments under equity methodThe investments for which the Group has the ability to exercise significant influence
are accounted for under the equity method. Under the equity method, original
investments are recorded at cost and adjusted by the Groups share of undistributed
earnings or losses of these entities, by the amortization of intangible assets
recognized upon purchase price allocation and by dividend distributions or subsequent
investments. All unrecognized inter-company profits or losses have been eliminated
under the equity method.
 F-16




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##### Table of Contents



2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
 (j)
    
    Investments under equity method  continuedThe Group generates a portion of its revenues from sales of advertising time on
mobile television networks which are owned by its equity method investees. Because
the operations of the Groups investees under equity method form an integral part to
the Groups operating activities, the Groups share of undistributed earnings or
losses of these entities is classified as part of the Groups operating profit
(loss).When the estimated amount to be realized from the investments falls below its
carrying value, an impairment charge is recognized in the consolidated statements of
operations when the decline in value is considered other than temporary.(k)
    
    Other investmentsThe Groups investments in non-marketable equity securities for which the Group does
not have the ability to exercise significant influence or control are accounted for
using the cost method. Dividends and other distributions of earnings from investees,
if any, are recognized in the consolidated statements of operations when declared.
The Group periodically evaluates the carrying value of investments accounted for
under the cost method of accounting and any impairment is included in the
consolidated statements of operations.(l)
    
    Impairment of long-lived assetsThe Group reviews its long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may no longer be
recoverable. When these events occur, the Group measures impairment by comparing the
carrying value of the long-lived assets to the estimated undiscounted future cash
flows expected to result from the use of the assets and their eventual disposition.
If the sum of the expected undiscounted cash flow is less than the carrying amount of
the assets, the Group recognizes an impairment loss based on the fair value of the
assets. No impairment charge is recognized for long-lived assets during the years
ended December 31, 2008 and 2009. The Group recorded an impairment charge of
$49,193,681 against intangible assets in the consolidated statements of operations
during the year ended December 31, 2010 as detailed in Note 8.(m)
    
    GoodwillGoodwill represents the excess of costs of businesses acquired over fair value of
acquired net tangible and identifiable intangible assets. Goodwill is not amortized,
but instead tested for impairment at least annually in accordance with the provisions
of FASB ASC 350, Intangibles  Goodwill and Other Intangible Assets.
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2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
 (m)
    
    Goodwill  continuedGoodwill is required to be reviewed for impairment on an annual basis. The goodwill
impairment test is a two-step test. Under the first step, the fair value of the
reporting unit is compared with its carrying value (including goodwill). If the fair
value of the reporting unit is less than its carrying value, an indication of goodwill
impairment exists for the reporting unit and the enterprise must perform step two of the
impairment test (measurement). Under step two, an impairment loss is recognized for any
excess of the carrying amount of the reporting units goodwill over the implied fair
value of that goodwill. The implied fair value of goodwill is determined by allocating
the fair value of the reporting unit in a manner similar to a purchase price allocation.
The residual fair value after this allocation is the implied fair value of the reporting
units goodwill. If the fair value of the reporting unit exceeds its carrying value,
step two does not need to be performed.No impairment charge is recognized against goodwill during the years ended December 31,
2008 and 2009. An impairment charge against goodwill of $96,526,823 was recorded in the
consolidated statements of operations during the year ended December 31, 2010 as
detailed in Note 7.(n)
    
    Business combinationsBusiness combinations are recorded using the acquisition method of accounting. On
January 1, 2009, the Group adopted a new accounting pronouncement with prospective
application which made certain changes to the previous authoritative literature on
business combinations. From January 1, 2009, the assets acquired, the liabilities
assumed, and any noncontrolling interest of the acquiree at the acquisition date, if
any, are measured at their fair values as of that date. Goodwill is recognized and
measured as the excess of the total consideration transferred plus the fair value of any
noncontrolling interest of the acquiree, if any, at the acquisition date over the fair
values of the identifiable net assets acquired. Previously, any noncontrolling interest
was reflected at historical cost. Common forms of the consideration made in acquisitions
include cash and common equity instruments. Consideration transferred in a business
combination is measured at the fair value as of the date of acquisition. For shares
issued in a business combination, the Group has estimated the fair value as of the date
of acquisition.Where the consideration in an acquisition includes contingent consideration, the payment
of which depends on the achievement of certain specified conditions post-acquisition,
from January 1, 2009 the contingent consideration is recognized and measured at its fair
value at the acquisition date and if recorded as a liability, it is subsequently carried
at fair value with changes in fair value reflected in the
consolidated statements of operations. For business acquired in
the periods prior to January 1, 2009, contingent consideration was not recorded until
the contingency was resolved.
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2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
 (o)
    
    Revenue recognition
 (1)
    
    Time-based advertising servicesFor time-based advertising services, the Group recognizes revenues as the
advertisements are aired over the contractual term based on the schedules agreed
with the customers. Payments received in advance of services provided are
recorded as customer deposits.Revenue is deferred until persuasive evidence of an arrangement exists, delivery
has occurred (provided that there are no significant post delivery obligations to
the customers), the sales price is fixed or determinable, and collection is
reasonably assured.(2)
    
    Barter transactionsThe Group engages in barter transactions which are generally recorded at fair
value. The amount of revenues recognized for barter transactions was
insignificant for each of the periods presented.(3)
    
    Sales of advertising equipmentRevenues from sales of advertising equipment, which are from related parties, are
recognized upon delivery, at which time all of the following four criteria are
met: (i) pervasive evidence that an arrangement exists; (ii) delivery of the
products and/or services has occurred and risks and rewards of ownership have
passed to the customer; (iii) the selling price is both fixed and determinable,
and (iv) collection of the resulting receivable is reasonably assured.Advertising equipment revenues are recorded net of value-added tax incurred,
which amounted to $96,117, Nil and Nil for the years ended December 31, 2008,
2009 and 2010, respectively.(4)
    
    Sales of PIDSThe Group entered into certain arrangements for sales of PIDS where it is
obligated to deliver multiple products and/or services (multiple elements),
including the equipment necessary for the operation of PIDS, free post-delivery
support and training. The Group is unable to establish vendor-specific objective
evidence or third party evidence of fair value for any of the elements in the
arrangement because they are not sold separately, nor is the Group able to
establish the estimated selling prices for each components in the arrangements
for sales of PIDS. Recognition of revenue from the sales of PIDS is therefore
deferred until the earlier of the point at which such sufficient vendor-specific
objective evidence does exist or all elements of the arrangement have been
delivered. No revenues from the sales of PIDS have been recognized in the
consolidated statements of operations for the years ended December 31, 2008, 2009
and 2010.
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2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
 (p)
    
    Cost of revenuesCost of advertising services consists primarily of media costs payable under advertising
agreements, depreciation, amortization of certain intangible assets, business taxes and
surcharges and other operating costs. Media costs are expensed as incurred.The amount of business taxes and surcharges included in advertising services cost
totalled $6,263,811, $6,750,536 and $3,242,640 for the years ended December 31, 2008,
2009 and 2010, respectively.Cost of sales of PIDS consists primarily of purchase cost of digital television displays
and other related equipment. Cost incurred for PIDS is recorded in deferred cost of
revenue within long-term prepayments and deposits in the consolidated balance sheets
until the corresponding revenue is recognized in the consolidated statements of
operations.(q)
    
    Operating leasesLeases in which substantially all the rewards and risks of ownership of assets remain
with the leasing group are accounted for as operating leases. Payments made under
operating leases are charged to the consolidated statement of operations on a
straight-line basis over the lease periods.(r)
    
    Foreign currency translationThe functional and reporting currency of the Company is the United States dollar (US
dollar). Monetary assets and liabilities denominated in currencies other than the US
dollar are translated into US dollars at the rates of exchange at the balance sheet
date. Transactions in currencies other than US dollars during the year are converted
into the US dollars at the applicable rates of exchange prevailing on the respective
dates of the transactions. Transaction gains and losses are recognized in the
consolidated statements of operations.The financial records of the Companys subsidiaries and VIEs are maintained in their
respective local currencies, the Renminbi (RMB) or Hong Kong Dollar, which are also
their respective functional currencies. Assets and liabilities are translated into US dollars at the
exchange rates at the balance sheet date; equity accounts are translated at historical
exchange rates; revenues, expenses and gains and losses are translated using the average
rates for the period. Translation adjustments are reported as cumulative translation
adjustments and are recorded within accumulated other comprehensive income in the
consolidated statements of changes of equity and comprehensive income (loss).
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2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
 (s)
    
    Net income (loss) per shareBasic net income (loss) per share is computed by dividing net income (loss) attributable
to VisionChina Media Inc. shareholders by the weighted average number of common shares
outstanding during the year. Diluted net income (loss) per share reflects the potential
dilution that could occur if securities or other contracts to issue common shares were
exercised or converted into common shares. The Companys dilutive securities consist of
outstanding share options and restricted shares. Certain common share equivalents (e.g.
share options and restricted shares) are excluded from calculation of
diluted net income
(loss) per share as their effect is anti-dilutive. The Company had 2,768,550, 2,399,658
and 1,771,824 outstanding share options as of December 31, 2008, 2009 and 2010,
respectively. As of December 31, 2008, 2009 and 2010, the Company had 204,889, 90,723
and 243,889 outstanding restricted shares, respectively.The following table sets forth the computation of basic and diluted net income (loss)
attributable to VisionChina Media Inc. shareholders per share.
 Year ended December 31,2008
    
    
    2009
    
    
    2010Numerator:Net income (loss) attributable to VisionChina
Media Inc. shareholders
    
    $
    46,809,950
    
    
    $
    26,603,003
    
    
    $
    (151,338,222
    )Denominator:Weighted average number of shares
outstanding  basic
    
    
    70,064,663
    
    
    
    71,686,900
    
    
    
    82,739,234Effect of dilutive securities:Share options and restricted shares
    
    
    2,340,253
    
    
    
    989,538
    
    
    
    Denominator used for diluted earnings per share
    
    
    72,404,916
    
    
    
    72,676,438
    
    
    
    82,739,234Basic net income (loss) per share
    
    $
    0.67
    
    
    $
    0.37
    
    
    $
    (1.83
    )Diluted net income (loss) per share
    
    $
    0.65
    
    
    $
    0.37
    
    
    $
    (1.83
    )
 (t)
    
    Income taxesDeferred tax assets and liabilities are determined based on the difference between the
financial reporting and tax bases of assets and liabilities, and operating loss and tax
credit carryforwards using enacted tax rates that will be in effect for the period in
which the differences are expected to reverse. The Group records a valuation allowance
against the amount of deferred tax assets that it determines is not more likely than not
of being realized. The effect on deferred taxes of a change in tax rates is recognized
in the consolidated statements of operations in the period that includes the enactment date.The Company recognizes the effect of income tax positions only if those positions are
more likely than not of being sustained. Recognized income tax positions are measured
at the largest amount that is greater than 50% likely of being realized. Changes in
recognition or measurement are reflected in the period in which the change in judgment
occurs. The Company has elected to record interest related to unrecognized tax benefits
and penalties, if any, within income tax benefit (expense).
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2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
 (u)
    
    Share-based compensationShare-based payments to employees are measured based on the fair values of share options
and restricted shares on the respective grant dates and recognized as compensation
expense over the requisite service periods with a corresponding credit to additional
paid-in capital. For share options and restricted shares granted with performance
condition that do not affect the exercise price or factors other than vesting or
exercisability, compensation expense is accrued if it is probable that the performance
condition will be achieved, and compensation expense is not accrued if it is not
probable that the performance condition will be achieved.Share awards issued to non-employees are measured at fair value at the earlier of the
commitment date or the date the services is completed and recognized over the period the
service is provided or as goods are received.The Group uses the Black-Scholes option pricing model to measure the value of options
granted to non-employees and employees at each measurement date.(v)
    
    Comprehensive income (loss)Comprehensive income (loss) is defined as the change in equity of the Group during a
period from transactions and other events and circumstances excluding transactions
resulting from investments by owners and distributions to owners. Comprehensive income
(loss) is reported in the consolidated statements of changes of equity and comprehensive
income (loss). Comprehensive income (loss) of the Group
represents the cumulative foreign
currency translation adjustments and net income (loss) for the year.(w)
    
    Use of estimatesThe preparation of consolidated financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the
consolidated financial statements, and the reported amounts of revenues and expenses
during the reporting period. Significant accounting estimates reflected in the Groups
consolidated financial statements include allowance for doubtful debts, valuation of
fixed assets, valuations of goodwill and intangible assets, valuation of investments
under equity method, valuation of other investments, valuation of deferred tax assets,
useful lives of fixed assets and intangible assets, fair value of share options and
restricted shares and provision for litigation. These estimates are often based on
complex judgments and assumptions that management believes to be reasonable but are
inherently uncertain and unpredictable. Actual results could differ from those
estimates.(x)
    
    Government grantsGovernment grants represent cash subsidies received from the PRC government by the
operating subsidiaries or VIEs of the Company. Government grants are recognized after
the grants have been received and all of the conditions specified in the grant have been
met, and are classified as operating or non-operating profit based on the nature of the
government grants in accordance to FASB ASC 225.
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2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
 (x)
    
    Government grants  continuedIn 2008, the Company received a government incentive of $672,515 from the local
government as a one-off award for the consummation of the Companys initial public
offering. This incentive was classified as non-operating income as it did not relate to
the Companys continuing business operations. In 2009, the Company received government
incentive of $538,085 from the local government for its local business operations. This
incentive has been classified as operating profit because it was related to the
Companys continuing business operations. In 2010, no such subsidy has been received by
the Group.(y)
    
    Concentration of RisksConcentration of Credit RiskFinancial instruments that potentially subject the Company to significant concentration
of credit risk primarily consist of cash and cash equivalents, restricted cash and
accounts receivable. As of December 31, 2009 and 2010, substantially all of the Groups
cash and cash equivalents and restricted cash were managed by financial institutions
with high credit ratings and quality. Accounts receivable are typically unsecured and
are derived from revenues earned from customers in the PRC. The risk with respect to
accounts receivable is mitigated by credit evaluations performed on the customers and
ongoing monitoring of outstanding balances. The Group maintains and records an
allowance for doubtful accounts for estimated losses resulting from the inability of its
customers to make required payments. The allowance for doubtful accounts is based on a
review of aging data and specifically identified accounts. Accounts receivable are
charged against the allowance after all means of collection have been exhausted and the
potential for recovery is considered remote. The accounts receivable from customers
with individual balances over 10% of the accounts receivable, net of allowance of
doubtful accounts, represent 23.66% and Nil of the balances of accounts receivable as of
December 31, 2009 and 2010, respectively.Current vulnerability due to certain other concentrationsSubstantially all of the Groups businesses are transacted in RMB, which is not freely
convertible into foreign currencies. On January 1, 1994, the PRC government abolished
the dual rate system and introduced a single rate of exchange as quoted daily by the
Peoples Bank of China. However, the unification of the exchange rates does not imply
the full convertibility of RMB into US dollar or other foreign currencies. All foreign
exchange transactions continue to take place either through the Peoples Bank of China
or other banks authorized to buy and sell foreign currencies at the exchange rates
quoted by the Peoples Bank of China. Approval of foreign currency payments by the
Peoples Bank of China or other institutions requires submitting a payment application
form together with supplier invoices, shipping documents and signed contracts.
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2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
 (z)
    
    Fair value of financial instrumentsThe Group applies the provisions of FASB ASC 820-10, Fair Value Measurements, or FASB
ASC 820-10, for fair value measurements of financial assets and financial liabilities
and for fair value measurements of nonfinancial items that are recognized or disclosed
at fair value in the financial statements. FASB ASC 820-10 also establishes a framework
for measuring fair value and expands disclosures about fair value measurements.FASB ASC 820-10 defines fair value as the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market participants at
the measurement date. When determining the fair value measurements for assets and
liabilities required or permitted to be recorded at fair value, the Group considers the
principal or most advantageous market in which it would transact and it considers
assumptions that market participants would use when pricing the asset or liability.FASB ASC 820-10 establishes a fair value hierarchy that requires an entity to maximize
the use of observable inputs and minimize the use of unobservable inputs when measuring
fair value. FASB ASC 820-10 establishes three levels of inputs that may be used to
measure fair value. The hierarchy gives the highest priority to unadjusted quoted
prices in active markets for identical assets or liabilities (Level 1 measurements) and
the lowest priority to measurements involving significant unobservable inputs (Level 3
measurements). The three levels of the fair value hierarchy are as follows:Level 1 applies to assets or liabilities for which there are quoted prices in active
markets for identical assets or liabilities.Level 2 applies to assets or liabilities for which there are inputs other than quoted
prices included within Level 1 that are observable for the asset or liability such as
quoted prices for similar assets or liabilities in active markets; quoted prices for
identical asset or liabilities in markets with insufficient volume or infrequent
transactions (less active markets); or model-derived valuations in which significant
inputs are observable or can be derived principally from, or corroborated by, observable
market data.Level 3 applies to assets or liabilities for which there are unobservable inputs to the
valuation methodology that are significant to the measurement of the fair value of the
assets or liabilities.The level in the fair value hierarchy within which a fair value measurement in its
entirety falls is based on the lowest level input that is significant to the fair value
measurement in its entirety.The Group did not have any financial assets and liabilities or nonfinancial assets and
liabilities that were required to be measured at fair value on a recurring basis as at
December 31, 2009 and 2010. Other than the impaired goodwill and intangible assets (see
Note 7 and Note 8), the Group did not have any assets and liabilities that were measured
at fair value on a nonrecurring basis. The estimated fair value of the impaired
goodwill and intangible assets at the time of impairment tests was estimated by applying
unobservable inputs to the discounted cash flow valuation methodology that are
significant to the measurement of the fair value of these assets (Level 3).
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  continued
 (z)
    
    Fair value of financial instruments  continuedThe carrying amounts of financial instruments, which consist of cash and cash
equivalents, restricted cash, accounts receivable, amounts due from related parties,
other current assets, short-term bank loans, accounts payable, amounts due to related
parties, consideration payable and other current liabilities approximate their fair
values due to the short term nature of these instruments. The fair values of
investments under equity method and other investments accounted for under cost method
cannot be reasonably estimated without incurring excessive cost.(aa)
    
    Recently issued accounting standardsIn April 2010, the FASB issued Accounting Standards Update (ASU) 2010-13,
Compensation-Stock Compensation (Topic 718)  Effect of Denominating the Exercise Price
of a Share-Based Payment Award in the Currency of the Market in Which the Underlying
Equity Security Trades  a consensus of the FASB Emerging Issues Task Force. ASU
2010-13 provides amendments to FASB ASC 718 to clarify that an employee share-based
payment award with an exercise price denominated in the currency of a market in which a
substantial portion of the entitys equity securities trades should not be considered to
contain a condition that is not a market, performance, or service condition. Therefore,
an entity would not classify such an award as a liability if it otherwise qualifies as
equity. The amendments in this update do not expand the recurring disclosures required
by FASB ASC 718. Disclosures currently required under FASB ASC 718 are applicable to a
share-based payment award, including the nature and the term of share-based payment
arrangements. The amendments in this update are effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15, 2010. The Company
is currently evaluating the impact of the adoption of ASU 2010-13 on its financial
statements.
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2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 
continued
 (aa)
    
    Recently issued accounting standards  continuedIn April 2010, the Emerging Issues Task Force reached a final consensus on milestone
method of revenue recognition and published ASU 2010-17, Revenue Recognition 
Milestone Method (Topic 605). The scope of this ASU is limited to arrangements that
include milestones relating to research or development deliverables. The consensus
specifies guidance that must be met for a vendor to recognize consideration that is
contingent upon achievement of a substantive milestone in its entirety in the period
in which the milestone is achieved. The guidance applies to milestones in
arrangements within the scope of this consensus regardless of whether the arrangement
is determined to have single or multiple deliverables or units of accounting. The
final consensus will be effective for fiscal years, and interim periods within those
years, beginning on or after June 15, 2010. Early application is permitted. The
Company is currently evaluating the impact of the adoption of ASU 2010-17 on its
financial statements.In December 2010, the FASB issued ASU 2010-29, Disclosure of Supplementary Pro Forma
Information for Business Combinations. The objective of this guidance is to address
diversity in practice regarding the interpretation of the pro forma revenue and
earnings disclosure requirements for business combinations. The amendments in this
update specify that if a public entity presents comparative financial statements, the
entity should disclose revenue and earnings of the combined entity as though the
business combination(s) that occurred during the year had occurred as of the
beginning of the comparable prior annual reporting only. The amendments also expand
the supplemental pro forma disclosures to include a description of the nature and
amount of material, nonrecurring pro forma adjustments directly attributable to the
business combination included in the reported pro forma revenue and earnings. The
amendments affect any public entity as defined by FASB ASC 805 that enters to
business combinations that are material on an individual or aggregated basis. The
amendments will be effective for business combinations consummated in periods
beginning after December 15, 2010 and are to be applied prospectively as of the date
of adoption. The Company is currently evaluating the impact of the adoption of ASU
2010-29 on its financial statements.In December 2010, the FASB issued ASU 2010-28, When to perform Step 2 of the Goodwill
Impairment test for Reporting Units with Zero or Negative Carrying Amounts. The
amendments in this update modify Step 1 so that for those reporting units, an entity
is required to perform Step 2 of the goodwill impairment test if it is more likely
than not that a goodwill impairment exists. In determining whether it is more likely
than not that a goodwill impairment exists, an entity is required to consider whether
there are any adverse qualitative factors indicating that an impairment may exist.
The qualitative factors are consistent with existing guidance, which requires that
goodwill of a reporting unit be tested for impairment between annual tests if an
event occurs or circumstances change that would more likely than not reduce the fair
value of a reporting unit below its carrying amount. The guidance is effective for
impairment tests performed during fiscal years (and interim periods within those
years) that begin after December 15, 2010. The Company is currently evaluating the
impact of the adoption of ASU 2010-28 on its financial statements.
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3.
    
    ACQUISITIONSAcquisitions in 2008Between April 1, 2008 and August 4, 2008, the Group acquired a 100% equity interest in the
following entities: Peak, Aim, Golden, Goldwhite, Ahead and Century. These six entities are
investing holding companies which own six different advertising agency businesses and were
acquired by the Group separately from six unrelated entities. The purpose of the
acquisitions was to leverage the blue-chip customer base of the advertising planning
companies and integrate their strong sales teams into the Groups sales network to increase
value for shareholders. The purchase price was comprised entirely of contingent
consideration based on multiples ranging from 1.0 to 2.3 on the Earnings (as defined below)
of the respective acquired businesses for the years ended December 31, 2008, 2009 and 2010,
contingent upon the collection of the relevant revenues of respective acquired businesses
(the Earn-out Consideration). The Earnings represent advertising service revenues
generated by the acquired business as deducted by the relevant operating costs and expenses
(including media costs, business taxes and surcharges, sales and marketing expenses, general
and administrative expenses, allowance for doubtful accounts) incurred by the corresponding
acquired business (Earnings). The Earnout Consideration is assessed quarterly and to be
settled on demand. Pursuant to the terms of the acquisition agreements, the Group paid
initial deposits of $16,689,988 (see note 11) in the year ended December 31, 2008. These
initial deposits will be used to offset a portion of the additional consideration payable at
the end of the Earn-out Considearation period, which is by end of June 2011.Earn-out Consideration is accounted for as the purchase price of the acquired businesses
when the contingency as stipulated in the acquisition agreements are resolved, that is when
the relevant revenues of the respective acquired businesses for the years ended December 31,
2008, 2009 and 2010 are collected, by recording additional goodwill with a corresponding
credit to consideration payable.The following tables summarize the methodology for calculations of Earn-out Consideration of
the respective acquired businesses upon the relevant revenue are collected:
 Acquired
businesses
    
    Methodology for calculation of Earn-out Consideration as set out in the
acquisition agreementsPeak
    
    Multiple of 2.23, 1.9 and 1.0 on the first RMB 40 million of, further RMB 75
million of and remaining Earnings of Peak, respectively, for year ended
December 31, 2008.Multiple of 2.23, 1.9 and 1.0 on the first RMB 46 million of, further RMB
112.5 million of and remaining Earnings of Peak, respectively, for year ended
December 31, 2009.Multiple of 2.23, 1.9 and 1.0 on the first RMB 52.9 million of, further RMB
135 million of and remaining Earnings of Peak, respectively, for year ended
December 31, 2010.The total contingent consideration for Peak is capped at RMB 350.0 million.
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3.
    
    ACQUISITIONS continuedAcquisitions in 2008 continued
 Acquired
businesses
    
    Methodology for calculation of Earn-out Consideration as set out in the
acquisition agreementsAim
    
    Multiple of 2.3, 1.9 and 1.0 on the first RMB 5 million of, further RMB 46.9
million of and remaining Earnings of Aim, respectively, for year ended December
31, 2008.Multiple of 2.3, 1.9 and 1.0 on the first RMB 7 million of, further RMB 53.6
million of and remaining Earnings of Aim, respectively, for year ended December
31, 2009.Multiple of 2.3, 1.9 and 1.0 on the first RMB 10 million of, further RMB 60.3
million of and remaining Earnings of Aim, respectively, for year ended December
31, 2010.The total contingent consideration for Aim is capped at RMB 171.6 million.Golden
    
    Multiple of 2.1, 1.9 and 1.0 on the first RMB 12 million of, further RMB 30
million of and remaining Earnings of Golden, respectively, for year ended December
31, 2008.Multiple of 2.1, 1.9 and 1.0 on the first RMB 15 million of, further RMB 37.5
million of and remaining Earnings of Golden, respectively, for year ended December
31, 2009.Multiple of 2.1, 1.9 and 1.0 on the first RMB 20 million of, further RMB 45
million of and remaining Earnings of Golden, respectively, for year ended December
31, 2010.The total contingent consideration for Golden is capped at RMB 118.5 million.Goldwhite
    
    Multiple of 2.29, 1.9 and 1.0 on the first RMB 20 million of, further RMB 30
million of and remaining Earnings of Goldwhite, respectively, for year ended
December 31, 2008.Multiple of 2.29, 1.9 and 1.0 on the first RMB 23 million of, further RMB 37.5
million of and remaining Earnings of Goldwhite, respectively, for year ended
December 31, 2009.Multiple of 2.29, 1.9 and 1.0 on the first RMB 26.45 million of, further RMB 45
million of and remaining Earnings of Goldwhite, respectively, for year ended
December 31, 2010.The total contingent consideration for Goldwhite is capped at RMB 151.0 million.
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3.
    
    ACQUISITIONS continuedAcquisitions in 2008 continued
 Acquired
businesses
    
    Methodology for calculation of Earn-out Consideration as set out in the
acquisition agreementsAhead
    
    Multiple of 2.09, 1.9 and 1.0 on the first RMB 13 million of, further RMB 42.25
million of and remaining Earnings of Ahead, respectively, for year ended
December 31, 2008.Multiple of 2.09, 1.9 and 1.0 on the first RMB 32.5 million of, further RMB 78
million of and remaining Earnings of Ahead, respectively, for year ended
December 31, 2009.Multiple of 2.09, 1.9 and 1.0 on the first RMB 39 million of, further RMB 87.75
million of and remaining Earnings of Ahead, respectively, for year ended
December 31, 2010.The total contingent consideration for Ahead is capped at RMB 184.0 million.Century
    
    Multiple of 2.2, 1.9 and 1.0 on the first RMB 8 million of, further RMB 12
million of and remaining Earnings of Century, respectively, for year ended
December 31, 2008, 2009 and 2010.Multiple of 2.2, 1.9 and 1.0 on the first RMB 12 million of, further RMB 16
million of and remaining Earnings of Century, respectively, for year ended
December 31, 2009.Multiple of 2.2, 1.9 and 1.0 on the first RMB 15 million of, further RMB 20
million of and remaining Earnings of Century, respectively, for year ended
December 31, 2010.The total contingent consideration for Century is capped at RMB 63.9 million.
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3.
    
    ACQUISITIONS continuedAcquisitions in 2008  continued
 The following table summarizes the maximum Earn-out Consideration for the years ended
December 31, 2008, 2009 and 2010 if the relevant revenues of the acquired businesses in
2008, 2009 and 2010 are fully collected:
 Peak
    
    
    Aim
    
    
    Golden
    
    
    Goldwhite
    
    
    Ahead
    
    
    Century
    
    
    TotalTotal maximum Earn-out Consideration:- 2008
    
    
    22,495,063
    
    
    
    12,682,567
    
    
    
    8,976,319
    
    
    
    9,365,189
    
    
    
    12,191,410
    
    
    
    3,727,453
    
    
    
    69,438,001- 2009
    
    
    25,823,672
    
    
    
    11,835,676
    
    
    
    7,732,219
    
    
    
    11,122,901
    
    
    
    13,623,225
    
    
    
    5,096,020
    
    
    
    75,233,713- 2010
    
    
    2,309,706
    
    
    
    983,706
    
    
    
    495,138
    
    
    
    1,337,715
    
    
    
    1,892,764
    
    
    
    463,174
    
    
    
    7,482,203
 The following table summarizes the movements of the Earn-out Consideration payables:
 Peak
    
    
    Aim
    
    
    Golden
    
    
    Goldwhite
    
    
    Ahead
    
    
    Century
    
    
    TotalAs of January 1, 2009
    
    $
    14,077,134
    
    
    $
    3,486,233
    
    
    $
    4,037,393
    
    
    $
    4,808,952
    
    
    $
    4,933,377
    
    
    $
    2,167,694
    
    
    $
    33,510,783Additional Earn-out Consideration for 2008
    
    
    8,417,929
    
    
    
    9,196,334
    
    
    
    4,938,926
    
    
    
    4,556,237
    
    
    
    7,258,033
    
    
    
    1,559,759
    
    
    
    35,927,218Earn-out Consideration for 2009
    
    
    25,823,672
    
    
    
    4,881,252
    
    
    
    5,154,755
    
    
    
    4,792,551
    
    
    
    6,917,422
    
    
    
    4,445,735
    
    
    
    52,015,387Less: Cash settlements in 2009
    
    
    (20,280,617
    )
    
    
    (12,268,699
    )
    
    
    (8,495,113
    )
    
    
    (8,065,394
    )
    
    
    (11,840,634
    )
    
    
    (3,298,945
    )
    
    
    (64,249,402
    )As of December 31, 2009
    
    
    28,038,118
    
    
    
    5,295,120
    
    
    
    5,635,961
    
    
    
    6,092,346
    
    
    
    7,268,198
    
    
    
    4,874,243
    
    
    
    57,203,986Additional Earn-out Consideration for 2009
    
    
    
    
    
    
    6,405,393
    
    
    
    2,577,464
    
    
    
    6,330,350
    
    
    
    5,890,039
    
    
    
    650,285
    
    
    
    21,853,531Earn-out Consideration for 2010
    
    
    2,309,706
    
    
    
    983,706
    
    
    
    495,138
    
    
    
    1,337,715
    
    
    
    638,150
    
    
    
    463,174
    
    
    
    6,227,589Less: Cash settlements in 2010
    
    
    (23,776,583
    )
    
    
    (10,921,164
    )
    
    
    (7,281,461
    )
    
    
    (9,904,807
    )
    
    
    (11,930,914
    )
    
    
    (4,694,249
    )
    
    
    (68,509,178
    )Offset by prepayment
    
    
    (6,571,241
    )
    
    
    (1,225,057
    )
    
    
    (1,427,102
    )
    
    
    (3,855,604
    )
    
    
    
    
    
    
    (1,271,392
    )
    
    
    (14,350,396
    )As of December 31, 2010
    
    $
    
    
    
    $
    537,998
    
    
    $
    
    
    
    $
    
    
    
    $
    1,865,473
    
    
    $
    22,061
    
    
    $
    2,425,532Recorded in the balance sheetAs of December 31, 2010 as:- Current
    
    $
    
    
    
    $
    537,998
    
    
    $
    
    
    
    $
    
    
    
    $
    1,865,473
    
    
    $
    22,061
    
    
    $
    2,425,532- Non-current
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    As of December 31, 2009 as:- Current
    
    $
    23,578,136
    
    
    $
    4,708,215
    
    
    $
    4,829,839
    
    
    $
    4,225,197
    
    
    $
    6,465,574
    
    
    $
    4,066,940
    
    
    $
    47,873,901- Non-current
    
    
    4,459,982
    
    
    
    586,905
    
    
    
    806,122
    
    
    
    1,867,149
    
    
    
    802,624
    
    
    
    807,303
    
    
    
    9,330,085
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3
    
    ACQUISITIONS continuedAcquisitions in 2008 continuedThe maximum amount of Earn-out Consideration is payable with a corresponding increase to the
goodwill carrying amount, which is not deductible for income tax purposes and primarily
represents the synergies through economies of scale, as and when the related revenues are
collected. The Company recorded a liability for Earn-out Consideration payable based on the
percentage of revenues collected. For the maximum 2008 Earn-out Consideration of $69.4
million, because part of the revenues generated in 2008 was collected in 2008, and part of
such revenues was collected in 2009, the Company recorded payable of 2008 Earn-out
Consideration of $33.5 million based on the percentage of 2008 revenues collected up to
December 31, 2008, and the remaining portion of 2008 Earn-out Consideration of $35.9 million
became payable in 2009 when the accounts receivable as of December 31, 2008 were fully
collected.Similarly, for the maximum 2009 Earn-out Consideration of $75.2 million, because not all of
the 2009 revenues were collected as of December 31, 2009 and 2010, the Company recorded
payable of 2009 Earn-out Consideration of $52.0 million and $21.9 million in 2009 and 2010,
respectively, based on the percentage of 2009 revenues collected in each of these two years,
and the remaining 2009 Earn-out Consideration of $1.3 million is expected to become payable
in 2011 when the accounts receivable recorded at December 31, 2009 related to the 2009
revenues being collected.For the maximum 2010 Earn-out Consideration of $7.5 million, because not all of the 2010
revenues for the six acquired businesses were collected as of December 31, 2010, the Company
recorded payable of 2010 Earn-out Consideration of $6.2 million in 2010, based on the
percentage of 2010 revenues collected in 2010, and the remaining 2010 Earn-out Consideration
payable of $1.3 million will be recorded in 2011 when the accounts receivable recorded at
December 31, 2010 related to the 2010 revenues are collected in 2011.The Company settled Earn-out Consideration of $64.2 million in 2009, and the current portion
of Earn-out Consideration payable as of December 31, 2009 of $47.9 million was paid in 2010.
The non-current portion of Earn-out Consideration payable of $9.3 million as of December
31, 2009 was previously expected to be offset against the deposit for the respective
acquisitions at the end of the Earn-out Consideration period, which is by end of June 2011.
Because the revenues for the Earn-out Consideration in four of the acquired advertising
agency businesses were fully collected by end of December 31, 2010, the majority of the
non-current Earn-out Consideration payable as of December 31, 2009 was offset against the
deposits for the acquisitions in 2010. The Earn-out Consideration payable of $2,425,532 as
of December 31, 2010 is expected to be settled in 2011.Due to the additional Earn-out Consideration for 2009 upon the collection of 2009 revenues
in 2010, and Earn-out Consideration for 2010 upon the receipt of the
2010 revenues in 2010,
the goodwill for Peak, Aim, Golden, Goldwhite, Ahead and Century increased by $2,309,706,
$7,389,099, $3,072,602, $7,668,065, $6,528,189, $1,113,459, respectively, during the year
ended December 31, 2010.In 2010, cash settlement of Earn-out Consideration payable of $23.8 million was made for
Peak in January 2010 and February 2010; cash settlement of Earn-out Consideration payable of
$10.9 million was made for Aim in January 2010, February 2010 and July 2010; cash settlement
of Earn-out Consideration payable of $7.3 million was made for Golden in January 2010,
February 2010 and April, 2010; cash settlement of Earn-out Consideration payable of $9.9
million was made for Goldwhite in January 2010, February 2010, April 2010 and June 2010;
cash settlement of Earn-out Consideration payable of $11.9 million was made for Ahead in
January 2010, March 2010 and April 2010; cash settlement of $4.7 million was made for
Century in January 2010 and March 2010.
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3.
    
    ACQUISITIONS continuedAcquisition in 2010On October 15, 2009, the Company entered into an agreement with DMG to acquire a 100% equity
interest in DMG (the DMG Acquisition). Prior to the acquisition, DMG through its
subsidiaries and VIE, was principally engaged in selling advertising time on its out-of-home
digital television networks in subway platforms in the PRC and HK. The purpose of this
acquisition is to eliminate the competition with DMG and increase the Groups market share
in selling advertisement time on mobile digital television networks in the PRC. The
acquisition was completed in January 2010. The total fair value of consideration on the
acquisition date of $166,534,458 is payable by means of cash and/or the Companys common
shares to the selling shareholders of DMG in three instalments over two years, including an
initial instalment of $100,000,000 payable at the closing of the transaction. The initial
instalment of consideration consists of payment of $40,000,000 in cash (the  First Cash
Instalment) and the delivery of 8,476,013 common shares of the Company. The agreement
specifies that the two subsequent instalments of $30,000,000 each, in which $20,000,000 will
be payable in cash and $10,000,000 will be payable, at the election of the selling
shareholders of DMG, either in cash or in common shares of the Company, is to be due on the
first and second anniversaries of the closing of the transaction, which is in 2011 and 2012,
respectively. The 8,476,013 common shares issuable to the selling shareholders of DMG under
the initial instalment are subject to a one-year lock-up period. For the $10,000,000
payable in cash or in common shares of the Company in each of the two subsequent
instalments, if the selling shareholders of DMG elected to receive common shares, the
agreement specifies that these common shares are to be subject to a lock-up period of 3
months from the date of issuance. The transaction cost in relation to the DMG Acquisition
was approximated to $472,000 which is included in general and administrative expense for the
year ended December 31, 2010.Pursuant to the agreement, the Group placed $40,000,000 (see Note 11) in the designated
escrow account in 2009, $36,000,000 of which was subsequently released as payment for the
First Cash Instalment during the year ended December 31, 2010. The remaining deposit of
$4,000,000 is expected to be released to the selling shareholders of DMG by the escrow agent
in 2011, and is recorded in the consolidated balance sheet within prepaid expenses and other
current assets (see Note 5) as of December 31, 2010. Upon release, the remaining deposit
will be offset against the current portion of consideration payable relating to the first
instalment of consideration. The Company issued 8,476,013 new common shares in 2010 for the
DMG Acquisition, 7,628,412 common shares of which have been released to the selling
shareholders of DMG in 2010, while the remaining 847,601 common shares have not been
released to the selling shareholders of DMG as of December 31, 2010.The second instalment of consideration of $30,000,000 for the DMG Acquisition is recorded
within current portion of consideration payable, and the third instalment of consideration
of $30,000,000 is discounted using effective interest method to $29,631,318 and recorded as
non-current consideration payable on the consolidated balance sheet as of December 31, 2010.
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3.
    
    ACQUISITIONS continuedAcquisition in 2010 continuedThe Company accounted for this business combination using the acquisition method of
accounting. The following table summarizes the consideration paid for DMG Acquisition and
the amounts of the assets acquired and liabilities assumed recognized based on their fair
values as of the acquisition date, as well as the fair value at the acquisition date of the
noncontrolling interest in DMG.
 As of
    
    
    AmortizationAcquisition date
    
    
    periodConsiderationCash (Note a)
    
    $
    79,311,438Equity instruments
(8,476,013 common shares of the Company) (Note b)
    
    
    67,567,386Cash / Equity instruments (Note c)
    
    
    19,655,634Fair value of total consideration transferred
    
    $
    166,534,458Recognized amounts of identifiable assets acquired
and liabilities assumedIdentifiable
intangible assets- Concession contracts
    
    $
    90,653,467
    
    
    9 years- Technology
    
    
    336,838
    
    
    9 years- Non-compete agreements
    
    
    161,097
    
    
    10 yearsCash and cash equivalents
    
    
    3,840,983Restricted cash
    
    
    42,409,500Fixed assets
    
    
    6,795,102Trade and other receivables and other assets
    
    
    9,175,868Short-term bank borrowings
    
    
    (42,898,604
    )Trade and other payables and other current liabilities
    
    
    (10,631,163
    )Deferred tax liabilities  non-current
    
    
    (22,787,850
    )Total identifiable net assets
    
    
    77,055,238Noncontrolling interest
    
    
    (2,403
    )Goodwill
    
    
    89,481,623$
    166,534,458Cash flows arising on acquisition in 2010:Cash and cash equivalents acquired
    
    
    3,840,983
 
 Notes:(a)
    
    This amount represents the cash deposit of $40,000,000 paid in 2009 (see Note
11) and fair value of the portion of consideration payable to be settled in cash
totalling $40,000,000 due in 2011 and 2012. As of June 30, 2011, the consideration
payable of $20,000,000 due in 2011 remains unpaid as a result of the litigation with the selling
shareholders of DMG as set out in Note 18(c).(b)
    
    The Company issued 8,476,013 common shares in 2010 for the DMG Acquisition,
7,628,412 common shares of which has been released to the selling shareholders of DMG
in 2010, while the remaining 847,601 common shares has not been released to the selling
shareholders of DMG as of December 31, 2010.(c)
    
    This amount represents fair value of the portion of consideration payable
totalling $20,000,000, which pursuant to the agreement will be settled, at the election
of the selling shareholders of DMG, either in cash or in common shares of the Company,
in 2011 and 2012. As of June 30, 2011, the consideration payable
of $10,000,000 due in 2011 remains
unpaid as a result of the litigation with the selling shareholders of DMG as set out in
Note 18(c). The fair values of intangible assets were derived from a valuation report prepared with
the assistance of an unrelated valuation expert.
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3.
    
    ACQUISITIONS- continuedAcquisition in 2010- continuedThe fair value of the 8,476,013 common shares issued as part of the consideration paid for
DMG Acquisition ($67,567,386) was determined based on the closing market price of the
Companys common shares on the acquisition date, adjusted for lower liquidity of lock-up
period of such shares.The fair value of the trade and other receivables and other
assets includes accounts receivable with a fair value of $3,719,694. The gross amount due under the contracts is
$3,923,478, of which $203,784 is expected to be uncollectible.The amount of goodwill resulting from the purchase price allocation represents the premium
paid for potential synergies expected to be generated from the acquisition. None of the
goodwill recognized is expected to be deductible for income tax purposes.The fair value of the noncontrolling interest in DMG, a private entity, was estimated by
applying the income approach and the market approach. This fair value measurement is based on
significant inputs that are not observable in the market and thus represents a Level 3
measurement. Key assumptions include a discount rate of 16%, a terminal value based on
long-term sustainable growth rates of 3%, and adjustments because of the lack of control or
lack of marketability that market participants would consider when estimating the fair value
of the noncontrolling interest in DMG.The amounts of DMGs revenues and results of operations included in the Groups consolidated
statement of operations for the year ended December 31, 2010, and the revenues and results
of operations of the combined entities had the acquisition date been January 1, 2010, or
January 1, 2009, are as follows. This pro forma financial information is presented for
information purposes only. It is based on historical information and does not purport to
represent the actual results that may have occurred had the Company consummated the
acquisition on January 1, 2009 or 2010, nor is it necessarily indicative of future results
of operations of the consolidated enterprise.
 Revenues
    
    

Net
Loss(unaudited)
    
    
    (unaudited)The amount attributable to DMG in the Groups consolidated
statement of operations for year ended December 31, 2010
    
    $
    30,662,842
    
    
    $
    (50,809,446
    )Supplemental pro forma for year ended December 31, 2009
    
    
    140,917,542
    
    
    
    (34,320,800
    )Supplemental pro forma for year ended December 31, 2010
    
    
    138,056,640
    
    
    
    (151,256,961
    )
 Please refer to Note 18(c) for further details on the litigation with former shareholders of
DMG.
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4.
    
    ACCOUNTS RECEIVABLE
 December 31,2009
    
    
    2010Accounts receivable
    
    $
    38,227,266
    
    
    $
    52,326,379Less: Allowance for doubtful accounts
    
    
    (1,177,190
    )
    
    
    (1,241,874
    )$
    37,050,076
    
    
    $
    51,084,505
 Movements in allowance for doubtful accounts
 December 31,2009
    
    
    2010Balance at beginning of the year
    
    $
    612,135
    
    
    $
    1,177,190Exchange realignment
    
    
    (1,316
    )
    
    
    40,131Current year additions
    
    
    627,169
    
    
    
    585,502Current year write-offs
    
    
    (60,798
    )
    
    
    (560,949
    )$
    1,177,190
    
    
    $
    1,241,874
 As of December 31, 2009 and 2010, the Group had billed accounts receivable of $29,370,464
and $36,234,818 and unbilled accounts receivable of $8,856,802 and $16,091,561 respectively.
Unbilled accounts receivable represent amounts earned under advertising contracts in
progress but not billable as of December 31, 2009 and 2010. These amounts become billable
according to contract terms. The Group anticipates that substantially all of such unbilled
amounts will be billed and collected within twelve months from the balance sheet date.
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5.
    
    PREPAID EXPENSES AND OTHER CURRENT ASSETS
 Prepaid expenses and other current assets consist of the following:
 December 31,2009
    
    
    2010Advances to suppliers
    
    $
    6,772,210
    
    
    $
    13,543,566Prepaid expenses
    
    
    713,173
    
    
    
    7,901,897Deposit for DMG Acquisition
    
    
    
    
    
    
    4,000,000Deposit for acquisitions of advertising agency businesses
    
    
    
    
    
    
    2,339,592Staff advances
    
    
    782,539
    
    
    
    827,904Other deposits
    
    
    390,096
    
    
    
    400,593Interest receivable
    
    
    158,257
    
    
    
    262,841Other current assets
    
    
    1,232,732
    
    
    
    2,755,550$
    10,049,007
    
    
    $
    32,031,943
 Advances to suppliers mainly represent prepayment for media costs. Other deposits mainly
represent deposits for media cost agreements that will expire within one year.
 6.
    
    FIXED ASSETS, NET
 Fixed assets consist of the following:
 December 31,2009
    
    
    2010Media display equipment
    
    $
    10,577,304
    
    
    $
    19,008,051Computers and office equipment
    
    
    1,333,285
    
    
    
    1,946,109Motor vehicles
    
    
    429,500
    
    
    
    446,815Leasehold improvements
    
    
    1,105,249
    
    
    
    1,613,887Sub-total
    
    $
    13,445,338
    
    
    
    23,014,862Less: accumulated depreciation and amortization
    
    
    4,252,597
    
    
    
    8,706,981$
    9,192,741
    
    
    $
    14,307,881
 Depreciation and amortization expense was $1,614,135, $2,368,155 and $4,345,512 for the
years ended December 31, 2008, 2009 and 2010, respectively.
 Included in media display equipment are assembly in progress of $1,348,046 and $1,159,568 as
of December 31, 2009 and 2010, respectively. These assets are expected to be placed in
service in the following year.
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7.
    
    GOODWILL
 The Groups goodwill primarily arises from the consideration paid and subsequent settlement
of contingent consideration of its acquisitions. The changes in the carrying amount of
goodwill for the years ended December 31, 2009 and 2010 are as follows:
 Balance as of January 1, 2009
    
    $    21,074,228Representing:  gross goodwill
    
    
    21,074,228 accumulated impairment loss
    
    
    Exchange realignment
    
    
    836Addition as a result of contingent consideration resolved (note 3)
    
    
    87,942,605Balance as of December 31, 2009
    
    
    109,017,669Representing:  gross goodwill
    
    
    109,017,669 accumulated impairment loss
    
    
    Exchange realignment
    
    
    4,517,390Addition as a result of contingent consideration resolved (note 3)
    
    
    28,081,120Addition from DMG Acquisition (note 3)
    
    
    89,481,623Impairment loss
    
    
    (96,526,823
    )Balance as of December 31, 2010
    
    $
    134,570,979Representing:   gross goodwill
    
    
    231,097,802 accumulated impairment loss
    
    
    (96,526,823
    )
 Due to the change in relevant regulations for advertising industry in the PRC in 2010, there
was a significant decline in customer demand, resulting in intense pricing pressure and
increasing competition of the Peak, Goldwhite and Ahead reporting units, which indicated a
potential impairment loss on the goodwill of these reporting units. The Company therefore
performed an impairment analysis for these reporting units in June 2010. The Company
performed the first step of its goodwill impairment test and determined that the carrying
value of the Peak, Goldwhite and Ahead reporting units exceeded their fair value. The fair
value of these reporting units was estimated using a discounted cash flow methodology
through internal analysis, which utilizes income approach through the application of
discounted cash flow method. The valuation technique is based on a number of estimates and
assumptions, including the projected future cash inflow from the reporting units,
appropriate discount rates and long-term growth rates. Having determined that the
goodwill of the Peak, Goldwhite and Ahead reporting units was potentially impaired, the
Company began performing the second step of the goodwill impairment analysis which involved
calculating the implied fair value of the goodwill by allocating the fair value of the
reporting units to all of their assets and liabilities other than goodwill and comparing the
residual amount to the carrying value of goodwill. Accordingly, the Company recorded
impairment losses of $43,579,230, $16,666,126 and $21,328,128 against the goodwill allocated
to the Peak, Goldwhite and Ahead reporting units, respectively, for the year ended December
31, 2010.
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7.
    
    GOODWILL  continuedThe Company performed an annual impairment test for other reporting units in December 2010.
The Company performed the first step of its goodwill impairment test and determined that the
carrying value of the DMG reporting unit exceeded its fair value which was estimated using a
discounted cash flow methodology. Management determined that the poorer than expected
performance of the DMG reporting unit led to a potential impairment of the goodwill of DMG
reporting unit. In addition, management believes that there was false, deceptive and
misleading information concerning DMGs financial condition and performance provided by the
former management and selling shareholders of DMG, and as a result, the Company launched a
lawsuit against the selling shareholders of DMG in December 2010 (see note 18(c)). The fair
value of these reporting units was estimated using a discounted cash flow methodology
through internal analysis, which utilizes income approach through the application of
discounted cash flow method. The valuation technique is based on a number of estimates and
assumptions, including the projected future cash inflow from the reporting units,
appropriate discount rates and long-term growth rates. Having determined that the goodwill
of the DMG reporting unit was potentially impaired, the Company began performing the second
step of the goodwill impairment analysis which involved calculating the implied fair value
of its goodwill by allocating the fair value of the reporting unit to all of its assets and
liabilities other than goodwill and comparing the residual amount to the carrying value of
goodwill. Accordingly, the Company recorded an impairment loss of $14,953,339 against the
goodwill of DMG reporting unit for the year ended December 31, 2010.
 8.
    
    INTANGIBLE ASSETS, NET
 As of December 31, 2009 and December 31, 2010, the Group had the following amounts related to the intangible assets:
 Weighted
    
    
    December 31, 2009
    
    
    December 31, 2010average
    
    
    
    
    
    
    Accumulated
    
    
    Net Carrying
    
    
    
    
    
    
    Accumulated
    
    
    Impairment
    
    
    Net Carryingeconomic life
    
    
    Cost
    
    
    amortization
    
    
    values
    
    
    Cost
    
    
    amortization
    
    
    loss
    
    
    valuesCustomer base
    
    5 years
    
    $
    11,984,292
    
    
    $
    (3,852,208
    )
    
    $
    8,132,084
    
    
    $
    12,392,843
    
    
    $
    (5,722,057
    )
    
    $
    (5,155,818
    )
    
    $
    1,514,968Non-compete
agreements
    
    10 years
    
    
    3,687,182
    
    
    
    (580,675
    )
    
    
    3,106,507
    
    
    
    3,979,249
    
    
    
    (1,017,737
    )
    
    
    (2,450,765
    )
    
    
    510,747Patents
    
    10 years
    
    
    234,599
    
    
    
    (17,218
    )
    
    
    217,381
    
    
    
    242,597
    
    
    
    (39,293
    )
    
    
    
    
    
    
    203,304Trademark
    
    10 years
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    133,095
    
    
    
    (13,310
    )
    
    
    
    
    
    
    119,785Concession
contracts
    
    9 years
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    93,620,494
    
    
    
    (10,746,917
    )
    
    
    (41,280,447
    )
    
    
    41,593,130Technology
    
    9 years
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    347,863
    
    
    
    (41,212
    )
    
    
    (306,651
    )
    
    
    $
    15,906,073
    
    
    $
    (4,450,101
    )
    
    $
    11,455,972
    
    
    $
    110,716,141
    
    
    $
    (17,580,526
    )
    
    $
    (49,193,681
    )
    
    $
    43,941,934
 The Company estimates the fair value of the intangible assets through internal
analysis, which utilizes income approach through the application of discounted cash flow
method. The valuation technique is based on a number of estimates and assumptions, including
the projected future cash inflow from the intangible assets, appropriate discount rates and
long-term growth rates. For the year ended December 31, 2010, the Group recorded
an impairment loss of $49,193,681 on its intangible assets, in connection with the three
advertising businesses which were acquired in 2008 as well as DMG which was acquired in 2010
due to poorer than expected performance of these businesses of the Group in 2010 as detailed
in Note 7.The Group recorded amortization expense as follows:
 December 31,2008
    
    
    2009
    
    
    2010Cost of revenues
    
    $
    
    
    
    $
    
    
    
    $
    10,184,158Selling and marketing expenses
    
    
    1,670,897
    
    
    
    2,765,578
    
    
    
    1,846,770General and administrative expenses
    
    
    
    
    
    
    17,219
    
    
    
    33,805$
    1,670,897
    
    
    $
    2,782,797
    
    
    $
    12,064,733
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8.
    
    INTANGIBLE ASSETS, NET  continuedThe Group will record amortization expense of $5,956,510 for each of the years ending
December 31, 2011 and 2012, $5,513,296 for the year ending December 31, 2013, and $5,303,783
for each of the years ending December 31, 2014 and 2015, respectively.
 9.
    
    INVESTMENTS UNDER EQUITY METHOD
 In 2007, VisionChina Media Group made cash investments totalling $965,581, $772,465 and
$643,720 for its 49% equity interests in Suzhou Mobile, Changzhou Mobile and Ningbo Mobile,
respectively. These equity method investees have been separately established with three
separate parties for the purpose of engaging in provision of digital mobile television
advertising services in the PRC.
 VisionChina Media Group also made additional cash investments in 2007 of $965,580 and
$507,154 to its existing equity method investees, Dalian Mobile and Hubei Mobile,
respectively.
 In 2008, VisionChina Media Group made additional cash investments of $111,396 to its
existing equity method investee, Haerbin Mobile and capitalized an amount due from its
existing equity method investee, Henan Mobile, of $897,032.
 As of December 31, 2009, the Group had, in total, nine equity method investees, and as of
December 31, 2010, the Group had ten equity method investees. The Group has accounted for
these investments using the equity method of accounting.
 The combined results of operations and financial position of these investments are
summarized below:
 Year ended December 31,2008
    
    
    2009
    
    
    2010Condensed statement of operations information:Revenue
    
    $
    5,019,647
    
    
    $
    6,607,047
    
    
    $
    8,224,393Net losses
    
    
    (482,795
    )
    
    
    (1,708,199
    )
    
    
    (527,690
    )Groups equity in net loss of investees
    
    $
    (236,570
    )
    
    $
    (837,018
    )
    
    $
    (258,568
    )
 December 31,2009
    
    
    2010Condensed balance sheet information:Current assets
    
    $
    5,300,868
    
    
    $
    7,635,498Non-current assets
    
    
    8,167,873
    
    
    
    6,691,325Total assets
    
    $
    13,468,741
    
    
    $
    14,326,823Current liabilities
    
    $
    4,913,433
    
    
    $
    5,022,263Equity
    
    
    8,555,308
    
    
    
    9,304,560Total liabilities and equity
    
    $
    13,468,741
    
    
    $
    14,326,823Groups share of net assets
    
    $
    4,192,101
    
    
    $
    4,559,234
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9.
    
    INVESTMENTS UNDER EQUITY METHOD  continuedAs of December 31, 2009 and 2010, the carrying value of the Groups investments under the
equity method was $6,670,189 and $6,618,828, respectively. The difference between the
carrying value of the Groups investments under the equity method and the Groups share in
its investees net assets was attributable to the elimination of unrealized profits on the
sales of certain media display equipment to its investees; and the adjustment attributable
to intangible assets, which represent the broadcasting rights contributed by the investors
and identified on formation, and their related amortization.
 10.
    
    OTHER INVESTMENTS
 In 2006, the Group acquired a 25% voting interest in Shenzhen Mobile, through VisionChina
Media Groups subsidiary, Shenzhen HDTV. Shenzhen Mobile was established in the PRC and
engages in the provision of digital mobile television advertising services in the PRC. As
the Group cannot exercise significant influence over Shenzhen Mobiles operating and
financial activities, the Group accounts for this investment using the cost method of
accounting.
 In 2006, the Group acquired a 14% voting interest in Wuxi Guangtong Digital Mobile
Television Company Limited (Guangtong Mobile). During the year ended December 31, 2009,
all shareholders of Guangtong Mobile made an additional capital injection and in order to
retain the same percentage of ownership, the Company also made an additional capital
injection of $389,048. Guangtong Mobile was established in the PRC and engages in the
provision of digital mobile television advertising business in the PRC. The Group accounts
for this investment using the cost method of accounting.
 11.
    
    LONG-TERM PREPAYMENTS AND DEPOSITS
 Long-term prepayments and deposits consist of the following:
 December 31,2009
    
    
    2010Prepaid service fees
    
    $
    705,798
    
    
    $
    956,552Deposits for acquisition of advertising agency businesses
    
    
    16,689,988
    
    
    
    Deposits for DMG Acquisition
    
    
    40,000,000
    
    
    
    Prepayments for acquisition of fixed assets
    
    
    1,311,766
    
    
    
    1,371,992Deferred cost of revenue
    
    
    
    
    
    
    1,844,076Other deposits
    
    
    6,534,018
    
    
    
    9,605,954$
    65,241,570
    
    
    $
    13,778,574
 Other deposits mainly represent deposits for media cost agreements. Deferred cost of
revenue represents the direct costs associated with the sales of PIDS for which the revenue
has been deferred in accordance with the Company revenue recognition policy.
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12.
    
    BANK LOANS
 The Groups bank loans consist of the following:
 December 31,2009
    
    
    2010Bank of China (Shenzhen branch) (BOC (SZ))- Fixed interest rate at 90% of Peoples Bank of China
benchmark rate, denominated in RMB (1)
    
    $
    731,294
    
    
    $
    60,497,898Bank of China (Macau branch) (BOC (Macau))- Fixed interest rate at 1.72% per annum, denominated in USD (2) (4)
    
    
    40,800,000
    
    
    
    40,800,000- Fixed interest rate at 1.72% per annum, denominated in USD (3) (4)
    
    
    
    
    
    
    20,400,000Total bank loans
    
    
    41,531,294
    
    
    
    121,697,898Less: Amount due within one year shown under current liabilities
    
    
    40,800,000
    
    
    
    121,697,898Amount due after one year shown under non-current liabilities
    
    $
    731,294
    
    
    $
    
 
 (1)
    
    The amounts will be repayable in full on December 30, 2011.(2)
    
    The amount represents a one-year term loan which was granted during the year
ended December 31, 2009 with maturity of December 11, 2010. The maturity of such loan
was further extended for an additional eleven months during the year ended December 31,
2010. The amounts will be repayable in full by October 11, 2011.(3)
    
    An additional $20,400,000 one-year term bank loan was granted during the year
ended December 31, 2010. The amounts were repaid in full by January 4, 2011.(4)
    
    Due to foreign currency exchange regulation, in order for the Group to borrow
amounts denominated in currencies other than RMB, one of the Companys subsidiaries in
the PRC entered into an arrangement with BOC (SZ) pursuant to which this subsidiary
placed a deposit denominated in RMB in the amount of $70,061,961 with
BOC (SZ), which is recorded as
restricted cash, and BOC (Macau) provided this loan to another subsidiary of the
Company incorporated in Hong Kong. There were no restrictive financial covenants associated with these loans.
 13.
    
    ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
  December 31,2009
    
    
    2010Accrued payroll and welfare
    
    $
    4,086,989
    
    
    $
    3,470,619Customer deposits
    
    
    1,107,594
    
    
    
    2,993,806Accrued expenses
    
    
    1,415,666
    
    
    
    2,976,613Accrued professional service fees
    
    
    463,377
    
    
    
    414,024Other taxes payable
    
    
    1,746,943
    
    
    
    959,710Others
    
    
    505,639
    
    
    
    1,138,454$
    9,326,208
    
    
    $
    11,953,226
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14.
    
    COMMON SHARES
 There were 72,140,684 common shares issued and outstanding as of December 31, 2009 after
423,139 share options and 557,083 restricted shares were exercised with the issuance of
980,222 common shares (see Note 16), and 658,980 common shares were repurchased by the
Company during the year ended December 31, 2009.
 There were 84,894,888 common shares issued and outstanding as of December 31, 2010 after the
issuance of 8,476,013 common shares as part of the consideration for the DMG Acquisition
(see Note 3), the issuance of 4,006,474 common shares to certain existing shareholders and
employees pursuant to a definitive agreement with them dated June 25, 2010 at a
consideration of $3.22 per share, and the issuance of 271,717 common shares as a result of
the exercise of 202,800 shares options and issuance of 68,917 restricted shares during the
year ended December 31, 2010 (see Note 16). Among the 8,476,013 common shares
issued in connection with the DMG Acquisition, 7,628,412 common shares have been released to
the selling shareholders of DMG in 2010, while the remaining 847,601 common shares have not
been released to the selling shareholders of DMG as of December 31, 2010.
 15.
    
    INCOME TAXES
 The Company is a tax exempted company incorporated in the Cayman Islands and conducts
substantially all of its business through its PRC subsidiaries, CDTC and Eastlong
Technology, and their VIEs, VisionChina Media Group and Eastlong Advertising.Cayman Islands and BVI
 The Company which was incorporated in the Cayman Islands and its subsidiaries incorporated
in Cayman Islands and BVI are not subject to income tax under the current laws of the Cayman
Islands or BVI. In addition, upon payments of dividends by the Company to its shareholders,
no Cayman Islands or BVI withholding tax will be imposed.Hong Kong
 The Companys subsidiaries established in HK are subject to HK profits tax on all profits
(excluding profits arising from the sale of capital assets, dividend income and interest
income) arising in or derived from HK from its trade, profession or business. The
applicable profits tax rate is 16.5% for the years ended December 31, 2009 and 2010.The PRC
 On January 1, 2008, the new enterprise income tax (EIT) law in the PRC (the New EIT
Laws) took effect. It applies a uniform tax rate of 25% for all enterprises (including
foreign-invested enterprises) and revoked the current tax exemption, reduction and
preferential treatments applicable to foreign-invested enterprises. However, there will be
a transition period for enterprises, whether foreign-invested or domestic, that were
receiving preferential tax treatments granted by relevant tax authorities. Enterprises that
were subject to an EIT rate lower than 25% prior to January 1, 2008 may continue to enjoy
the lower rate and gradually transition to the new tax rate over the five year period after
the effective date of the New EIT Law. According to the implementation regulations, during
the transition period, the EIT rate for CDTC, Shenzhen HDTV and DMG Shenzhen is 18%, 20%,
22%, 24% and 25% in the years 2008, 2009, 2010, 2011 and 2012, respectively.
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##### Table of Contents



15.
    
    INCOME TAXES continued
 In addition, the Ministry of Finance of the PRC and the State Administration of Taxation
issued a circular Notice on preferential tax treatment of enterprise income tax in
February 2008. The circular stipulates that newly established culture enterprises can enjoy
the corporate income tax exemption treatment which has been approved by the authorities
until the end of the holiday. VisionChina Media Group has already obtained the tax
exemption approval certificate for the year 2008 and thus continued to enjoy a full
exemption from EIT in 2008. Further, in accordance with another circular issued in November
2008, VisionChina Media Group has been recognized as a state-encouraged high-new technology
enterprise starting from 2008, and the status is valid for a period of three years. Under
the New EIT Law, a high-new technology enterprise is entitled to a preferential tax rate of
15%. As such, the EIT rate for VisionChina Media Group is 0%, 15%, 15%, 24% and 25% in the
years of 2008, 2009, 2010, 2011 and 2012, respectively.
 VisionChina Media Group is currently applying to be a state-encouraged high-new technology
enterprise in 2011, 2012 and 2013 for a preferential tax rate of 15% in these three years.
 In accordance with a circular issued in December 2010, Eastlong Technology has been
recognized as a state-encouraged high-new technology enterprise starting from 2010, and the
status is valid for a period of three years. As such the EIT rate for Eastlong Technology
is 25% in 2009, and 15% in each of the years of 2010, 2011 and 2012, respectively.
 Xian Huachangshi and Huadingshi were established subsequent to the promulgation of the New
EIT Law and as such, are subject to the uniform income tax rate of 25%.
 Luzhou Huashi was established in Sichuan. It is recognized as a Local government
encouraged company and is entitled to exemption from EIT for the years ended December 31,
2008 and 2009, and reduced tax rate of 7.5% for the year ended December 31, 2010 and years
ending 2011 and 2012.
 The Company and its other PRC subsidiaries does not have major
operations, and the Group has
minimal operations in jurisdictions other than the PRC.
 The current and deferred components of the income tax (benefit) expense appearing in the
consolidated statements of operations are as follows:
 Year ended December 31,2008
    
    
    2009
    
    
    2010Current tax
    
    $
    39,108
    
    
    $
    2,531,392
    
    
    
    (193,330
    )Deferred tax
    
    
    (251,433
    )
    
    
    (183,138
    )
    
    
    (18,008,959
    )$
    (212,325
    )
    
    $
    2,348,254
    
    
    $
    (18,202,289
    )
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15.
    
    INCOME TAXES continued
 The principal components of the Groups deferred tax assets and liabilities are as follows:
 December 31,2009
    
    
    2010Deferred tax assets:Net operating loss carrying forward
    
    $
    2,154,303
    
    
    $
    18,447,926Total deferred tax assets
    
    
    2,154,303
    
    
    
    18,447,926Valuation allowance on deferred tax assets
    
    
    (2,112,994
    )
    
    
    (15,326,946
    )Net deferred tax assets
    
    $
    41,309
    
    
    $
    3,120,980Deferred tax liabilities:Intangible assets
    
    $
    2,503,125
    
    
    $
    10,896,392Classification on consolidated balance sheetDeferred tax assets- Current
    
    $
    41,309
    
    
    $
    - Non-current
    
    $
    
    
    
    $
    3,120,980Deferred tax liabilities- Non-current
    
    $
    2,503,125
    
    
    $
    10,896,392
 Movement of valuation allowance
 2008
    
    
    2009
    
    
    2010At the beginning of the year
    
    $
    207,759
    
    
    $
    962,556
    
    
    $
    2,112,994Arising from DMG Acquisition
    
    
    
    
    
    
    
    
    
    
    15,882,116Exchange realignment
    
    
    14,376
    
    
    
    (2,070
    )
    
    
    613,465Change in tax rate
    
    
    11,976
    
    
    
    24,248
    
    
    
    (1,285,778
    )Increase
(decrease) in valuation allowance
    
    
    728,445
    
    
    
    1,128,260
    
    
    
    (1,995,851
    )At the end of the year
    
    $
    962,556
    
    
    $
    2,112,994
    
    
    $
    15,326,946
 A valuation allowance has been provided on the deferred tax assets because the Group
believes that it is not more likely than not that the assets will be utilized. As of
December 31, 2009 and 2010, a valuation allowance was provided for the deferred tax assets
relating to the future benefit of net operating loss carryforward as the management
determined that the utilization of those net operating loss carryforward is not more likely
than not. If events occur in the future that allow the Group to realize more of its
deferred tax assets than the presently recorded amount, an adjustment to the valuation
allowance will be made when those events occur.
 As of December 31, 2010, the Group had net operating loss carryforward of approximately
$1,914,876, $2,834,842, $10,882,962, $46,628,231 and $25,325,955 that will expire in the
years ending December 31, 2011, 2012, 2013, 2014 and 2015, respectively.
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15.
    
    INCOME TAXES continued
 A reconciliation of the income tax (benefit) expense to the amount computed by applying the
current tax rate to income (loss) before income taxes in the statements of operations is as
follows:
 Year ended December 31,2008
    
    
    2009
    
    
    2010Expected taxation at PRC EIT statutory rate
of 25%
    
    $
    11,626,587
    
    
    $
    7,206,054
    
    
    $
    (42,364,813
    )Effect of different tax rates
    
    
    (36,866
    )
    
    
    (55,207
    )
    
    
    (1,296,247
    )Effect of loss that cannot be carried forward
    
    
    370,960
    
    
    
    1,474,310
    
    
    
    1,785,662Tax expense arising from items which are
not deductible for tax purpose:- non-deductible entertainment
expenses
    
    
    472,294
    
    
    
    766,046
    
    
    
    1,269,481- goodwill impairment
    
    
    
    
    
    
    
    
    
    
    24,131,706- others, net
    
    
    58,474
    
    
    
    280,650
    
    
    
    528,275Effect of tax exemption and tax concessions
    
    
    (13,432,219
    )
    
    
    (8,412,656
    )
    
    
    (67,172
    )Overprovision in prior year
    
    
    
    
    
    
    (39,203
    )
    
    
    (193,330
    )Change in valuation allowance
    
    
    728,445
    
    
    
    1,128,260
    
    
    
    (1,995,851
    )Total income tax (benefit) expense
    
    $
    (212,325
    )
    
    $
    2,348,254
    
    
    $
    (18,202,289
    )
 The amounts of $13,432,219, $8,412,656 and $67,172 would otherwise have been payable without
tax exemptions or tax concessions for the years ended December 31, 2008, 2009 and 2010,
respectively. In addition, $0.19, $0.12 and $0.001 would have been deducted from the basic
net income per share or added back to the basic net loss per share for the years ended
December 31, 2008, 2009 and 2010, respectively.
 Uncertainties exist with respect to how the PRCs current income tax law applies to the
Companys overall operations, and more specifically, with regard to tax residency status.
The New EIT Law includes a provision specifying that legal entities organized outside of the
PRC will be considered residents for PRC income tax purposes if their place of effective
management or control is within the PRC. The Implementation Rules to the New Law provides
that non-resident legal entities will be considered PRC residents if substantial and overall
management and control over the manufacturing and business operations, personnel,
accounting, properties, etc. occur within the PRC. The Company does not believe that its
legal entities organized outside of the PRC should be treated as residents for the New EIT
Laws purposes. Because substantially all of the Companys revenues on a consolidated basis
are generated in the PRC, and the Companys legal entities organized outside of the PRC do
not generate any taxable income on a stand alone basis, even if one or more of the Companys
legal entities organized outside of the PRC were characterized as PRC tax residents, the
Company does not expect any significant adverse impact on the Companys consolidated results
of operations.
 Aggregate undistributed earnings of the Companys subsidiaries and VIEs in the PRC that are
available for distribution to the Company of approximately $74.1 million as of December 31,
2010 are considered to be indefinitely reinvested under FASB ASC 740, and accordingly, no
provision has been made for the PRC dividend withholding taxes that would be payable upon
the distribution of those amounts to the Company. In an announcement formally made on
February 22, 2008, the PRC authorities clarified that the distributions made out of
undistributed earnings that arose prior to January 1, 2008 would not give rise to
withholding tax.
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15.
    
    INCOME TAXES continued
 Under US GAAP, deferred tax liability should be accounted for in respect of the
undistributed earnings of the Companys financial interest in VIE affiliates and domestic
subsidiaries. The Company believes that it is more likely than not that there is no deferred
tax liability resulting from the undistributed earnings because the Company has means
available under the PRC tax law to recover the investment in its consolidated VIE tax free,
including but not limited to the following series of transactions:
 
    
    The provision of technical support service by the Companys PRC wholly owned
subsidiary to its consolidated VIE will cause an expense to the consolidated VIE,
resulting in the majority of the undistributed earnings of the consolidated VIE being
transferred to the Company without incurring any additional income tax expense on the
basis that the Companys PRC wholly owned subsidiary and the consolidated VIE are in
the same tax jurisdiction and subject to the same income tax rate. The price of the
technical support service will be determined on an arms length basis.
 
    
    The Company would ensure the significant existing contracts, including the
exclusive agency agreements and the contracts for direct investment arrangements to be
signed or renewed upon expiry of such contracts by a new VIE of the
Company. Therefore, all the operations in the existing consolidated VIE will be taken by the new VIE
without resulting any capital gain subject to income taxes; and
 
    
    The Company or its wholly owned PRC subsidiary would exercise the call option to
acquire all the equity interests in the existing consolidated VIE from its shareholders
after all the operations have been transferred to the new VIE. Without any continuing
operations or substantial remaining undistributed earnings, the purchase price for the
existing consolidated VIE would be approximately valued at its
paid-in capital, in which case it is not more likely than not that it
would give rise to income tax resulting from any capital gain.
 The Group has made its assessment of the level of tax authority for each tax position
(including the potential application of interest and penalties) based on the technical
merits in each case, and has measured the unrecognized tax benefits associated with the tax
positions. Based on this evaluation, the Group has concluded that there are no significant
uncertain tax positions requiring recognition in its consolidated financial statements. The
Group does not anticipate any significant increases or decreases to its liability for
unrecognized tax benefits within the next twelve months. The Group classifies interest
and/or penalties related to income tax matters in income tax benefit (expense). As of
December 31, 2010, there is no interest or penalties related to uncertain tax positions.
The years 2005 to 2010 remain subject to examination by the PRC tax authorities.
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16.
    
    SHARE INCENTIVE PLAN
 On December 8, 2006, the Group adopted the 2006 share incentive plan (the Plan) which
allows the Group to offer a variety of incentive awards to consultants and employees. The
Group reserved 7,000,000 ordinary shares in 2006 and 2007 for issuance under the Plan. In
December 2008, the total number of share issuable under the Plan was increased to 8,000,000
shares. In 2008, the Group granted 925,000 share options to consultants and employees with
exercise prices ranging from $5.82 to $18.00. In 2008, the Group also granted 288,000
restricted shares to consultants and employees. In 2009, the Group granted 649,550 share
options to employees with exercise prices ranging from $5.48 to $8.53. In 2009, the Group
also granted 500,000 restricted shares to consultants and employees. In 2010, the Group
granted 379,000 share options to employees with exercise prices ranging from $4.32 to $4.71.
In 2010, the Group also granted 470,000 restricted shares to consultants and employees.
 The contractual term of the options granted is generally ten years. The majority of the
options granted vest 25% after the first year of service and rateably over the remaining
36-month period, and certain of the options vest contingent upon meeting performance
criteria set by the Company over a performance period ranging from 9 months to 48 months
from the respective grant dates For the options that would vest based on performance
conditions, the performance criteria are linked to the employees job performance, and at
the end of the performance period, the Company determines at its sole discretion whether
each employee has met all performance criteria for the vesting of the share options. The
performance criteria do not affect the exercise price or factors other than vesting or
exercisability. Included in the 379,000 share options granted during 2010 are 80,100
options that would vest based on performance conditions. Included in the 649,550 share
options granted during 2009 are 63,700 options that would vest based on performance
conditions. Included in the 925,000 share options granted in 2008 are 394,500 options that
would vest based on performance conditions.
 The fair value of restricted shares was determined to be the market value of the common
shares on the date of grant whereas the fair value of options granted to employees was
estimated on the date of grant using the Black-Scholes option-pricing model with the
following assumptions:
 2008
    
    
    2009
    
    
    2010Risk-free interest rate
    
    
    0.51  3.65
    %
    
    
    1.11  2.69
    %
    
    
    0.46%  2.67
    %Expected life
    
    0.254 years
    
    2.54 years
    
    0.754 yearsExpected volatility
    
    
    0.382  1.122
    
    
    
    1.18  1.32
    
    
    
    0.66  1.52Expected dividends
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
 Expected volatility was determined by reference to the historical volatility of the Company
or the average annualized standard deviation of the share price of listed comparable
companies. The expected life of the options is based on the assumption that they will be
exercised evenly throughout the option life. The risk-free interest rate is based on the
yield to maturity of the PRC government bond as of the grant date with maturity closest to
the relevant option expiry date.
 F-47




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16.
    
    SHARE INCENTIVE PLAN continuedThe fair values of share options granted in 2008, 2009 and 2010 were determined on a
contemporaneous basis by management of the Company with reference to the market value of the
Companys shares.Share OptionsA summary of share options under the Plan during the years ended December 31, 2008, 2009 and 2010 is presented
below:
 Weighted-
    
    
    Weighted-Number
    
    
    Weighted-
    
    
    average
    
    
    averageof
    
    
    average
    
    
    remaining
    
    
    fair valueshares
    
    
    exercise price
    
    
    contractual life
    
    
    at grant dateOutstanding as of January 1, 2008
    
    
    4,838,359
    
    
    $
    3.78
    
    
    
    9.46
    
    
    $
    0.31Granted- March 14, 2008
    
    
    445,000
    
    
    $
    10.19
    
    
    
    
    
    
    $
    2.46- June 3, 2008
    
    
    128,000
    
    
    
    18.00
    
    
    
    
    
    
    
    6.01- June 23, 2008
    
    
    100,000
    
    
    
    12.64
    
    
    
    
    
    
    
    10.09- September 29, 2008
    
    
    170,000
    
    
    
    15.54
    
    
    
    
    
    
    
    5.37- December 11, 2008
    
    
    82,000
    
    
    
    5.82
    
    
    
    
    
    
    
    2.48Exercised
    
    
    (2,525,893
    )
    
    
    4.31
    
    
    
    
    
    
    
    0.37Forfeited
    
    
    (468,916
    )
    
    
    9.06
    
    
    
    
    
    
    
    1.97Outstanding as of December 31, 2008
    
    
    2,768,550
    
    
    $
    5.19
    
    
    
    8.58
    
    
    $
    1.30Granted- January 22, 2009
    
    
    25,100
    
    
    $
    6.60
    
    
    
    
    
    
    $
    4.63- March 4, 2009
    
    
    47,450
    
    
    
    5.81
    
    
    
    
    
    
    
    4.48- June 17, 2009
    
    
    55,000
    
    
    
    5.48
    
    
    
    
    
    
    
    4.48- June 29, 2009
    
    
    250,000
    
    
    
    6.03
    
    
    
    
    
    
    
    4.86- September 6, 2009
    
    
    76,000
    
    
    
    5.85
    
    
    
    
    
    
    
    4.74- October 8, 2009
    
    
    196,000
    
    
    
    8.53
    
    
    
    
    
    
    
    7.18Exercised
    
    
    (423,139
    )
    
    
    1.75
    
    
    
    
    
    
    
    0.22Forfeited
    
    
    (595,303
    )
    
    
    9.69
    
    
    
    
    
    
    
    4.39Outstanding as of December 31, 2009
    
    
    2,399,658
    
    
    $
    5.10
    
    
    
    8.00
    
    
    $
    1.87Granted- April 2, 2010
    
    
    172,000
    
    
    $
    4.68
    
    
    
    
    
    
    $
    2.58- April 20, 2010
    
    
    100,000
    
    
    
    4.71
    
    
    
    
    
    
    
    4.71- September 26, 2010
    
    
    107,000
    
    
    
    4.32
    
    
    
    
    
    
    
    3.78Exercised
    
    
    (202,800
    )
    
    
    0.76
    
    
    
    
    
    
    
    0.23Forfeited
    
    
    (804,034
    )
    
    
    8.09
    
    
    
    
    
    
    
    4.14Outstanding as of December 31, 2010
    
    
    1,771,824
    
    
    $
    4.13
    
    
    
    7.34
    
    
    $
    1.45Exercisable as of December 31, 2010
    
    
    1,336,432
    
    
    $
    4.11
    
    
    
    6.91
    
    
    $
    0.64
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16.
    
    SHARE INCENTIVE PLAN continuedThe Company received proceeds of $10,906,256, $918,282 and $157,533 from exercise of share
options by the employee during the years ended December 31, 2008, 2009 and 2010,
respectively.The aggregate intrinsic value of the outstanding share options was $2,053,479 as of December
31, 2010 and the aggregate intrinsic value of options exercisable as of December 31, 2010
was $1,962,881.The aggregate intrinsic values of share options exercised during the years ended December
31, 2008, 2009 and 2010 were $38,778,583, $3,879,831 and $1,561,267, respectively.Restricted sharesA summary of restricted shares under the Plan during the years ended December 31, 2008, 2009
and 2010 is presented below:
 WeightedNumber of
    
    
    averageshares
    
    
    fair valueOutstanding as of January 1, 2008
    
    
    
    
    
    $
    Granted
    
    
    288,000
    
    
    
    8.81Forfeited
    
    
    (45,000
    )
    
    
    9.70Vested
    
    
    (38,111
    )
    
    
    6.95Outstanding as of December 31, 2008
    
    
    204,889
    
    
    $
    8.96Granted
    
    
    500,000
    
    
    
    5.81Forfeited
    
    
    (57,083
    )
    
    
    7.25Vested
    
    
    (557,083
    )
    
    
    6.33Outstanding as of December 31, 2009
    
    
    90,723
    
    
    $
    8.80Granted
    
    
    470,000
    
    
    
    4.30Forfeited
    
    
    (247,917
    )
    
    
    5.78Vested
    
    
    (68,917
    )
    
    
    6.14Outstanding as of December 31, 2010
    
    
    243,889
    
    
    $
    3.95
 Restricted shares are granted subject to certain restrictions. The majority of the
restricted shares generally vest 25% after the first year of service and rateably over the
remaining 36-month period, and certain of the restricted shares vest based on certain
performance conditions. Included in the 470,000 restricted shares granted during 2010 are
450,000 restricted shares that would vest based on certain performance conditions.The total share-based compensation expenses in relation to options and restricted shares
recognized in the statements of operations for the years ended December 31, 2008, 2009 and
2010 was $1,467,057, $4,332,111 and $947,505, respectively.As of December 31, 2010, there was $2,314,240 of total unrecognized share-based compensation
expenses related to non-vested share options and non-vested restricted shares granted under
the Plan. That expense is expected to be recognized over 4 years.
 F-49




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17
    
    PRC CONTRIBUTION PLANThe Groups full time employees in the PRC participate in a
government-mandated multiemployer defined contribution plan pursuant
to which certain medical care unemployment insurance, employee housing
fund and other welfare benefits are provided to employees. The PRC
labour regulations require the Group to accrue for these benefits
based on certain percentages of the employees salaries. The total
contributions for such employee benefits for the years ended December
31, 2008, 2009 and 2010 were $483,065, $743,516 and $1,431,972,
respectively.18
    
    COMMITMENTS AND CONTINGENCIES
 (a)
    
    Lease commitmentsThe Group has entered into certain leasing arrangements relating to the lease of the
Groups office premises. Rental expense under these operating leases for the years
ended 2008, 2009 and 2010 was $640,007, $1,007,991 and $1,660,007, respectively.As of December 31, 2010, the Group was obligated under certain operating leases,
relating to the rental of office premises, requiring minimum rental payments as
follows:
 Year ending December 31,2011
    
    $
    1,040,1752012
    
    
    452,3482013
    
    
    188,1292014
    
    
    144,4342015
    
    
    132,0852016 and thereafter
    
    
    110,181$
    2,067,352
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##### Table of Contents



18.
    
    COMMITMENTS AND CONTINGENCIES continued
 (b)
    
    Other commitmentsThe Group has entered into several agreements to pay media costs for periods of
typically 5 to 10 years. As of December 31, 2010, future minimum purchase
commitments under these agreements totalled approximately $323,935,000, which will be
payable as follow:
 Year ending December 31,2011
    
    $
    87,839,0002012
    
    
    90,098,0002013
    
    
    69,877,0002014
    
    
    39,489,0002015
    
    
    24,871,0002016 and thereafter
    
    
    11,761,000$
    323,935,000
 (c)
    
    Litigation with former shareholders of DMGThe Company filed a summons with notice in the Supreme Court of the State of New York
(Supreme Court) on December 27, 2010 against the selling shareholders of DMG. The
summons and notice alleges that the selling shareholders of DMG engaged in an
unlawful scheme to induce the Group, through false, deceptive, and misleading
statements concerning DMGs financial condition and performance, to pay a grossly
inflated price to purchase DMG in 2010, and has received, or is scheduled to receive,
ill-gotten gains from this unlawful scheme. The summons and notice further alleges
that the Group is owed indemnification from an escrow fund, established at the time
of the purchase, as a result of breaches of representations and warranties contained
in the merger agreement. The litigation is in progress as of
June 30, 2011.On February 25, 2011, a counter-suit was filed by the Gobi Partners, Inc., Gobi Fund,
Inc., Gobi Fund II, L.P., Oak Investment Partners XII, L.P., Thomas Gai Tei Tsao and
other as-yet unnamed participants (collectively, Former DMG Shareholders) to the
lawsuit filed by the Company on December 27, 2010 against the Former DMG
Shareholders. The complaint alleges that the Company breached certain agreements
related to the DMG Acquisition, by allegedly declining to make certain instalment
payments that the Former DMG Shareholders claim they were entitled to receive, and
allegedly declining to take other steps to facilitate the transfer of Company stock
that the Former DMG Shareholders are entitled to receive in connection with the DMG
Acquisition. The Former DMG Shareholders were also seeking specific enforcement of
the contracts at issue, compensatory damages in an amount to be determined at trial,
permanent and preliminary injunctive relief and such other relief as the court deems
just and proper.The Company believes that the Former DMG Shareholders claims and related motions are
without merit and intend to vigorously defend the claims and oppose the motions.
Accordingly, no provision for contingent loss was recorded in connection with the
litigation with the Former DMG Shareholders in the Companys consolidated financial
statements although consideration payable in connection with the DMG Acquisition has
been fully provided for in the consolidated financial statements (See note 3). The
motions were presented to the Supreme Courts consideration on March 15, 2011. No
decision has been reached by court regarding the initial filing by the Company and
the counter-suit by the Former DMG Shareholders up to June 30, 2011.
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##### Table of Contents



18.
    
    COMMITMENTS AND CONTINGENCIES continued
 (d)
    
    OtherThe National Standard of Frame Structure and Channel Code and Modulation of Digital
Television Ground Broadcasting Transmission System (the National Standard), was
approved by the Standardization Administration of the PRC on August 18, 2006, and
became effective on August 1, 2008. On March 27, 2006, the PRC State Administration
of Radio, Film and Television (SARFT) promulgated the Notice Concerning
Experimental Mobile Digital Television (the March Notice), which required all of
the Groups local operating partners to adopt the National Standard for their mobile
digital television operations and the SARFT has officially issued a notice to require
some of the Groups local operating partners and direct equity investment entities to
complete the adoption of the National Standard by June 30, 2010. As of April 1,
2010, the mobile digital television network of the Groups equity method investees
and the digital television broadcasting infrastructure of the Groups local operating
partners in 11 cities have been converted to the National Standard, but those in
another 9 cities have not yet completed the conversion and do not meet the
requirements of the National Standard. The Groups direct equity investment entities
and local operating partners may be required to spend significant capital and other
resources, including the acquisition of new equipment, to convert their digital
television broadcasting infrastructure to the National Standard. Under some of the
Groups exclusive advertising agency agreements, the Group may be responsible for a
portion of such expenditures in 5 of the 9 cities that have not yet completed the
conversion. The total cost of converting the equipment to the National Standard in
these five cities is expected to be less than RMB13 million. However, the Group and
its local operating partners in these five cities have not yet determined the
allocation of such capital expenditures, and there is no reliable basis for
management to accurately estimate the amount and timing of capital expenditures
required for these local operating partners. Accordingly, no accrual for such
liability has been made in the consolidated financial statements.
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##### Table of Contents



19
    
    SEGMENT AND GEOGRAPHIC INFORMATIONThe Group operates and manages its business as a single segment. The Groups chief operating decision maker has
been identified as the Chief Executive Officer, who reviews the consolidated results when making decisions about
allocating resources and assessing performance of the Group.Geographical informationThe Group operates in the PRC and all of the Groups identifiable assets are located in the PRC.Although the Group operates in multiple cities in the PRC which include Beijing, Shanghai, Guangzhou, Shenzhen,
Nanjing and other cities, it believes it operates in one segment as the Group provides services to customers
irrespective of their locations. Accordingly all relevant information about the Groups operations can be found in
the consolidated financial statements.Major CustomersThe Group contracts either directly with advertisers or through advertising agents. The Group had contracted with
the following advertisers or advertising agents that accounted for 10% or more of the total advertising service
revenue:
 Percentage of revenue2008
    
    
    2009
    
    
    2010Agent A
    
    
    N/A
    
    
    
    N/A
    
    
    
    10.6
    %
 The accounts receivable from customers with balances over 10% of the accounts receivable, net are as follows:
 Percentage ofaccounts receivable2009
    
    
    2010%
    
    
    %Agent A
    
    
    11.19
    
    
    
    N/AAgent B
    
    
    12.47
    
    
    
    N/A
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20
    
    RELATED PARTY TRANSACTIONS
 (a)
    
    Details of amounts due from related parties as of December 31, 2009 and 2010
are as follows:
 December 31,2009
    
    
    2010Chengdu Mobile
    
    $
    580,025
    
    
    $
    Haerbin Mobile
    
    
    
    
    
    
    284,107Hubei Mobile
    
    
    186,621
    
    
    
    217,939Jilin Mobile
    
    
    513,514
    
    
    
    417,995Suzhou Mobile
    
    
    54,847
    
    
    
    Changzhou Mobile
    
    
    614,358
    
    
    
    29,074Shenzhen Mobile
    
    
    2,170,838
    
    
    
    1,854,810Guangtong Mobile
    
    
    214,269
    
    
    
    90,747Zhongguanguoji
    
    
    
    
    
    
    131,748Chongqing Rail Transit General Corporation
    
    
    
    
    
    
    151,245$
    4,334,472
    
    
    $
    3,177,665
 The amounts due from related parties are non-interest bearing and repayable on
demand.
 (b)
    
    Details of amounts due to related parties as of December 31, 2009 and 2010 are
as follows:
 December 31,2009
    
    
    2010Chengdu Mobile
    
    $
    
    
    
    $
    510,018Dalian Mobile
    
    
    19,132
    
    
    
    19,784Haerbin Mobile
    
    
    2,194
    
    
    
    3,123Hubei Mobile
    
    
    29,552
    
    
    
    30,560Henan Mobile
    
    
    36,902
    
    
    
    23,603Ningbo Mobile
    
    
    64,162
    
    
    
    271,839Changzhou Mobile
    
    
    2,343
    
    
    
    2,423Zhongguanguoji
    
    
    
    
    
    
    834,365Shenzhen Meidi Zhiye Development Co., Ltd. (Zhiye)
    
    
    27,800
    
    
    
    56,346Shenzhen Champs Elysees Renovations Co., Ltd.
(Champs Elysees)
    
    
    30,944
    
    
    
    $
    213,029
    
    
    $
    1,752,061
 The amounts due to related parties are non-interest bearing and repayable on demand.Zhiye is a company in which the chief executive officer of the Company holds a beneficial
interest and Champs Elysees is a company in which the chief executive officers wife holds a
beneficial interest.The amounts due from/to related parties mainly arise from trading transactions with related
parties (such as sales of advertising equipment to related parties and/or receipt of
services rendered by related parties) and payments of expenses on behalf of the related
parties.
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20.
    
    RELATED PARTY TRANSACTIONS continued
 (c)
    
    Advertising equipment sales to investee companiesThe Group sold digital equipment at negotiated price to related parties for a total
amount of, $565,392, Nil and Nil for the years ended December 31, 2008, 2009 and
2010, respectively. Details are as follows:
 Year ended December 31,2008
    
    
    2009
    
    
    2010Chengdu Mobile
    
    $
    15,531
    
    
    $
    
    
    
    $
    Dalian Mobile
    
    
    
    
    
    
    
    
    
    
    Haerbin Mobile
    
    
    
    
    
    
    
    
    
    
    Henan Mobile
    
    
    162,546
    
    
    
    
    
    
    
    Hubei Mobile
    
    
    
    
    
    
    
    
    
    
    Suzhou Mobile
    
    
    157,352
    
    
    
    
    
    
    
    Changzhou Mobile
    
    
    150,407
    
    
    
    
    
    
    
    Ningbo Mobile
    
    
    79,556
    
    
    
    
    
    
    
    $
    565,392
    
    
    $
    
    
    
    $
    
 (d)
    
    Services rendered by investee companiesThe Group has received broadcasting service and other services from related parties
at negotiated prices for a total amount of $7,989,832, $10,251,290 and $16,357,610
for the years ended December 31, 2008, 2009 and 2010, respectively. Details are as
follows:
 Year ended December 31,2008
    
    
    2009
    
    
    2010Chengdu Mobile
    
    $
    1,007,951
    
    
    $
    1,105,108
    
    
    $
    1,814,631Dalian Mobile
    
    
    883,650
    
    
    
    1,178,596
    
    
    
    1,308,066Guangtong Mobile
    
    
    345,491
    
    
    
    521,450
    
    
    
    884,801Jilin Mobile
    
    
    274,013
    
    
    
    451,700
    
    
    
    483,320Hubei Mobile
    
    
    430,587
    
    
    
    617,992
    
    
    
    795,583Haerbin Mobile
    
    
    51,333
    
    
    
    15,286
    
    
    
    18,104Ningbo Mobile
    
    
    1,334,749
    
    
    
    1,281,127
    
    
    
    1,264,212Suzhou Mobile
    
    
    133,183
    
    
    
    303,346
    
    
    
    663,863Changzhou Mobile
    
    
    268
    
    
    
    408,225
    
    
    
    Henan Mobile
    
    
    41,325
    
    
    
    101,198
    
    
    
    171,908Shenzhen Mobile
    
    
    3,487,282
    
    
    
    4,267,262
    
    
    
    8,769,071Zhongguangguoji
    
    
    
    
    
    
    
    
    
    
    184,051$
    7,989,832
    
    
    $
    10,251,290
    
    
    $
    16,357,610
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##### Table of Contents



20.
    
    RELATED PARTY TRANSACTIONS continued
 (e)
    
    Rental expenseDuring the years ended December 31, 2008, 2009 and 2010, the Group rented office
space from Zhiye. The rate for rent was determined based on negotiated prices. The
rental expense for the years ended December 31, 2008, 2009 and 2010 was $163,511,
$191,758 and $154,153, respectively.(f)
    
    OtherFor the years ended December 31, 2008, 2009 and 2010, the Group paid office
decoration charges of $194,101, $236,124 and $270,864, respectively, to Champs
Elysees. During the years ended December 31, 2008, 2009 and 2010, the Group also
paid property management fees and utility expenses of $22,661,
$26,820 and $28,702,
respectively, to Champs Elysees.
 21.
    
    PROFIT APPROPRIATIONIn accordance with the Regulations on Enterprises with Foreign
Investment of China and the articles of association of the Companys
subsidiaries, the Companys subsidiaries, being foreign invested
enterprises established in China, are required to provide certain
statutory reserve funds, namely general reserve fund, enterprise
expansion fund and staff welfare and bonus funds, all of which are
appropriated from net profit as reported in their PRC statutory
accounts. The Companys subsidiaries are required to allocate at
least 10% of their after-tax profits to the general reserve fund until
such fund has reached 50% of their respective registered capital.
Appropriations to the enterprise expansion fund and staff welfare and
bonus fund are at the discretion of the board of directors of the
Companys subsidiaries.In accordance with the PRC Company Laws, the Companys VIEs and their
subsidiaries must make appropriations from their after-tax profits as
reported in their PRC statutory accounts to non-distributable reserve
funds, namely statutory surplus fund, statutory public welfare fund
and discretionary surplus fund. The Companys VIEs and their
subsidiaries are required to allocate at least 10% of their after-tax
profits to the statutory surplus fund until such fund has reached 50%
of their respective registered capital. Appropriations to the
statutory public welfare fund and discretionary surplus fund are at
the discretion of the Companys VIEs and their subsidiaries.The general reserve fund and statutory surplus fund are restricted to
set-off against losses, expansion of production and operation and
increasing registered capital of the respective company. The staff
welfare and bonus fund and statutory public welfare fund are
restricted to capital expenditures for the collective welfare of
employees. These reserves are not allowed to be transferred to the
Company in terms of cash dividends or loans or advances, nor can they
be distributed except under liquidation.There were no appropriations to reserves by the Company other than the
Companys VIEs and certain of the VIEs subsidiaries in the PRC during
any of the periods presented. During the years ended December 31,
2008, 2009 and 2010, approximately $5,597,415, $4,249,280 and $34,442
was appropriated from retained earnings to the statutory surplus fund,
respectively, which are included in the accumulated profits (deficit) of the Group.
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22.
    
    RESTRICTED NET ASSETSUnder PRC laws and regulations, there are certain restrictions on the
Companys PRC subsidiaries and VIEs with respect to transferring
certain of their net assets and reserves to the Company either in the
form of dividends, loans, or advances. Amounts restricted include
restricted cash, paid-up capital, reserves and accumulated profits
(deficit) of the Companys PRC subsidiaries and VIEs, totaling
approximately $205,369,450 and $110,240,586 as of December 31, 2009
and 2010, respectively.23.
    
    SUBSEQUENT EVENTInvestments from Focus Media Holding LimitedOn January 13, 2011, the Company and Focus Media Holding Limited (Focus Media) announced
the closing of a securities purchase transaction in which Focus Media, JJ Media Investment
Holding Limited and Front Lead Investments Limited have purchased 15,331,305, 1,022,087 and
1,022,087, respectively, newly issued common shares of the Company at a price of $3.979 per
share, equivalent to $3.979 per ADS.
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December 31,2009
    
    
    2010ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    6,961,436
    
    
    $
    14,788,170Amounts due from subsidiaries
    
    
    68,114,565
    
    
    
    87,821,975Prepaid expenses and other current assets
    
    
    2,439
    
    
    
    364,357Total current assets
    
    $
    75,078,440
    
    
    $
    102,974,502Non-current Assets:Fixed assets, net
    
    $
    93,676
    
    
    $
    71,384Investment in subsidiaries and variable interest entities
    
    
    205,794,723
    
    
    
    136,475,828Total non-current assets
    
    $
    205,888,399
    
    
    
    136,547,212TOTAL ASSETS
    
    $
    280,966,839
    
    
    $
    239,521,714LIABILITIES AND EQUITYCurrent Liabilities:Amounts due to subsidiaries
    
    $
    6,157,970
    
    
    $
    23,906,496Accrued expenses and other current liabilities
    
    
    1,827,513
    
    
    
    830,214Total liabilities
    
    $
    7,985,483
    
    
    $
    24,736,710EquityCommon shares ($0.0001 par value;
200,000,000 shares authorized; 72,140,684 and
84,894,888 shares issued and outstanding as of
December 31, 2009 and 2010, respectively)
    
    $
    7,214
    
    
    $
    8,490Additional paid-in capital
    
    
    192,362,565
    
    
    
    273,934,960Accumulated profits (deficit)
    
    
    70,623,826
    
    
    
    (80,714,396
    )Accumulated other comprehensive income
    
    
    9,987,751
    
    
    
    21,555,950Total VisionChina Media Inc. shareholders equity
    
    $
    272,981,356
    
    
    $
    214,785,004TOTAL LIABILITIES AND EQUITY
    
    $
    280,966,839
    
    
    $
    239,521,714
 F-58




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##### Table of Contents



Year ended December 31,2008
    
    
    2009
    
    
    2010General and administrative expenses
    
    $
    (2,884,499
    )
    
    $
    (5,711,551
    )
    
    $
    (2,560,680
    )Equity in income (loss) of subsidiaries
and variable interest entities
    
    
    48,252,862
    
    
    
    32,260,524
    
    
    
    (148,454,480
    )Operating profit (loss)
    
    
    45,368,363
    
    
    
    26,548,973
    
    
    
    (151,015,160
    )Interest income
    
    
    1,441,587
    
    
    
    54,030
    
    
    
    1,303Interest expense
    
    
    
    
    
    
    
    
    
    
    (324,365
    )Net income (loss)
    
    $
    46,809,950
    
    
    $
    26,603,003
    
    
    $
    (151,338,222
    )
 F-59




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##### Table of Contents



AccumulatedAdditional
    
    
    
    
    
    
    other
    
    
    TotalCommon shares
    
    
    paid-in
    
    
    Accumulated
    
    
    comprehensive
    
    
    shareholders
    
    
    ComprehensiveNumber
    
    
    Amount
    
    
    capital
    
    
    (deficit) profits
    
    
    income
    
    
    equity
    
    
    income (loss)Balance as of January 1, 2008
    
    
    68,386,838
    
    
    $
    6,839
    
    
    $
    163,820,443
    
    
    $
    (2,789,127
    )
    
    $
    2,990,664
    
    
    $
    164,028,819Issuance of common shares
pursuant to follow-on offering
    
    
    1,150,000
    
    
    
    115
    
    
    
    17,569,585
    
    
    
    
    
    
    
    
    
    
    
    17,569,700Direct offering expenses
    
    
    
    
    
    
    
    
    
    
    (1,613,738
    )
    
    
    
    
    
    
    
    
    
    
    (1,613,738
    )Shares repurchase
    
    
    (281,400
    )
    
    
    (28
    )
    
    
    (1,454,628
    )
    
    
    
    
    
    
    
    
    
    
    (1,454,656
    )Exercise of share options
    
    
    2,525,893
    
    
    
    252
    
    
    
    10,906,004
    
    
    
    
    
    
    
    
    
    
    
    10,906,256Restricted shares
    
    
    38,111
    
    
    
    4
    
    
    
    (4
    )
    
    
    
    
    
    
    
    
    
    
    Share-based compensation
    
    
    
    
    
    
    
    
    
    
    1,467,057
    
    
    
    
    
    
    
    
    
    
    
    1,467,057Cumulative translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,359,826
    
    
    
    7,359,826
    
    
    $
    7,359,826Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46,809,950
    
    
    
    
    
    
    
    46,809,950
    
    
    
    46,809,950$
    54,169,776Balance as of December 31, 2008
    
    
    71,819,442
    
    
    $
    7,182
    
    
    $
    190,694,719
    
    
    $
    44,020,823
    
    
    $
    10,350,490
    
    
    $
    245,073,214Shares repurchase
    
    
    (658,980
    )
    
    
    (66
    )
    
    
    (3,582,449
    )
    
    
    
    
    
    
    
    
    
    
    (3,582,515
    )Exercise of share options
    
    
    423,139
    
    
    
    42
    
    
    
    918,240
    
    
    
    
    
    
    
    
    
    
    
    918,282Restricted shares
    
    
    557,083
    
    
    
    56
    
    
    
    (56
    )
    
    
    
    
    
    
    
    
    
    
    Share-based compensation
    
    
    
    
    
    
    
    
    
    
    4,332,111
    
    
    
    
    
    
    
    
    
    
    
    4,332,111Cumulative translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (362,739
    )
    
    
    (362,739
    )
    
    $
    (362,739
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,603,003
    
    
    
    
    
    
    
    26,603,003
    
    
    
    26,603,003$
    26,240,264Balance as of December 31, 2009
    
    
    72,140,684
    
    
    $
    7,214
    
    
    $
    192,362,565
    
    
    $
    70,623,826
    
    
    $
    9,987,751
    
    
    $
    272,981,356Share issued for DMG Acquisition
    
    
    8,476,013
    
    
    
    848
    
    
    
    67,566,538
    
    
    
    
    
    
    
    
    
    
    
    67,567,386Shares issued to certain subscribers
    
    
    4,006,474
    
    
    
    401
    
    
    
    12,900,846
    
    
    
    
    
    
    
    
    
    
    
    12,901,247Exercise of share options
    
    
    202,800
    
    
    
    20
    
    
    
    157,513
    
    
    
    
    
    
    
    
    
    
    
    157,533Restricted shares
    
    
    68,917
    
    
    
    7
    
    
    
    (7
    )
    
    
    
    
    
    
    
    
    
    
    Share-based compensation
    
    
    
    
    
    
    
    
    
    
    947,505
    
    
    
    
    
    
    
    
    
    
    
    947,505Cumulative translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,568,199
    
    
    
    11,568,199
    
    
    
    11,568,199Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (151,338,222
    )
    
    
    
    
    
    
    (151,338,222
    )
    
    
    (151,338,222
    )(139,770,023
    )Balance as of December 31, 2010
    
    
    84,894,888
    
    
    $
    8,490
    
    
    $
    273,934,960
    
    
    $
    (80,714,396
    )
    
    $
    21,555,950
    
    
    $
    214,785,004
 F-60




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##### Table of Contents



Year ended December 31,2008
    
    
    2009
    
    
    2010Cash flows from operating activities:Net income (loss)
    
    $
    46,809,950
    
    
    $
    26,603,003
    
    
    $
    (151,338,222
    )Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:Depreciation and amortization
    
    
    4,514
    
    
    
    17,917
    
    
    
    22,292Equity in income (loss) of subsidiaries
and variable interest entities
    
    
    (48,252,862
    )
    
    
    (32,260,524
    )
    
    
    148,454,480Share-based compensation
    
    
    1,467,057
    
    
    
    4,332,111
    
    
    
    947,505Changes in operating assets and liabilities:Prepaid expenses and other current assets
    
    
    37,820
    
    
    
    278,663
    
    
    
    (361,918
    )Amounts due from subsidiaries
    
    
    
    
    
    
    (50,000,342
    )
    
    
    (19,707,410
    )Accrued expenses and other current liabilities
    
    
    1,654,096
    
    
    
    123,091
    
    
    
    (997,299
    )Net cash provided by (used in) operating activities
    
    
    1,720,575
    
    
    
    (50,906,081
    )
    
    
    (22,980,572
    )Cash flows from investing activities:Acquisition of fixed assets
    
    
    (70,526
    )
    
    
    (45,581
    )
    
    
    Amounts due (to) from subsidiaries
    
    
    (12,061,513
    )
    
    
    6,157,970
    
    
    
    17,748,526Investments in subsidiaries
    
    
    (59,999,997
    )
    
    
    (1
    )
    
    
    Net cash (used in) provided by investing activities
    
    
    (72,132,036
    )
    
    
    6,112,388
    
    
    
    17,748,526Cash flows from financing activities:Proceeds from issuance of common shares, net of
issuance cost
    
    
    13,708,984
    
    
    
    
    
    
    
    Proceeds from exercise of share options
    
    
    10,906,256
    
    
    
    918,282
    
    
    
    157,533Payments of direct offering expenses
    
    
    
    
    
    
    (278,902
    )
    
    
    Share repurchases
    
    
    
    
    
    
    (5,037,171
    )
    
    
    Proceeds from issuance of common shares
    
    
    
    
    
    
    
    
    
    
    12,901,247Net cash provided by (used in) financing activities
    
    
    24,615,240
    
    
    
    (4,397,791
    )
    
    
    13,058,780Net (decrease) increase in cash and cash equivalents
    
    
    (45,796,221
    )
    
    
    (49,191,484
    )
    
    
    7,826,734Cash and cash equivalents at the beginning of the year
    
    
    101,949,141
    
    
    
    56,152,920
    
    
    
    6,961,436Cash and cash equivalents at the end of the year
    
    $
    56,152,920
    
    
    $
    6,961,436
    
    
    $
    14,788,170Non-cash financing and investing activities:Shares repurchase not yet settled
    
    
    1,454,656
    
    
    
    
    
    
    
    Shares issued as part of consideration for acquisition
of subsidiaries
    
    
    
    
    
    
    
    
    
    
    67,567,386
 F-61




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##### Table of Contents



Basis of Presentation
  F-62